Which is a measure of a stockholder's return?
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A. B. C. D. E.C
The dividend yield = Dividends for the Year/Stock Price at the Beginning of the Year; It is one of the two important measures of a stock investor's return, with the other being capital gain.
A measure of a stockholder's return refers to the profitability or earnings generated by owning shares of a company's stock. Among the options provided, the measure that best captures this concept is "Return on Equity" (ROE), which is option A.
Return on Equity (ROE) is a financial ratio that represents the profitability and efficiency of a company in generating earnings for its shareholders. It is calculated by dividing the net income of a company by its average shareholders' equity. The formula for ROE is as follows:
ROE = (Net Income / Average Shareholders' Equity) * 100
ROE is expressed as a percentage and indicates how effectively a company is using shareholders' equity to generate profits. A higher ROE typically suggests that a company is generating greater profits relative to the amount of equity invested by shareholders.
Option B, the Debt to Equity Ratio, is a measure of a company's capital structure and indicates the proportion of debt and equity financing used by the company. It does not directly measure a stockholder's return but provides insights into the financial leverage of a company.
Option C, the Dividend Yield, is a financial ratio that measures the annual dividend payment by a company relative to its stock price. While dividends are a form of return to stockholders, dividend yield alone does not capture the comprehensive return on the investment in the stock, as it does not consider the capital appreciation or depreciation of the stock price.
Option D, Return on Assets (ROA), is a financial ratio that measures how efficiently a company utilizes its assets to generate profits. ROA calculates the net income of a company relative to its total assets. While it is an important measure of a company's profitability, it does not solely represent a stockholder's return because it does not consider the equity portion of the investment.
Option E, the Payout Ratio, represents the proportion of earnings distributed to shareholders in the form of dividends. While it is related to the return a stockholder may receive through dividends, it does not encompass the overall return on the investment in the stock, which includes both dividends and capital appreciation.
In summary, among the options provided, the measure that best represents a stockholder's return is Return on Equity (ROE) as it specifically assesses the profitability generated by shareholders' equity.