CFA Practice Question

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CFA Practice Question

Which of the following formulas is the formula for computing return on equity (ROE)?

A. Net income divided by assets
B. Net income divided by equity
C. Sales divided by assets
Correct Answer: B

The formula for computing return on equity is net income divided by equity. Return on equity will be greater than return on investment when a company has financial leverage greater than one.

User Contributed Comments 7

User Comment
S/A=A Turnover
julescruis thanks gina
godz if you got this wrong dont show up at the exam center
Drzewes GIna:


ROI = NI/ Equity + total debt

I am almost :) sure.
endlessfin1te isn't Asset = Equity + Debt anyway?
johntan1979 Look at the explanation given in the answer... the only way ROE > ROI is when the equity multiplier or leverage is > 1.

In other words, ROI = NI/A = ROA
ldfrench @godz, el oh el plz don't be mean (i mean it plz)
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