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    Question

    Company A and Company B both have a net income of ₹5

    crores. However, Company A has equity of ₹50 crores while Company B has equity of ₹20 crores. Based on ROE, which company is more efficient?
    A Company A Correct Answer Incorrect Answer
    B Company B Correct Answer Incorrect Answer
    C Both are equally efficient Correct Answer Incorrect Answer
    D Can’t determine without other data Correct Answer Incorrect Answer

    Solution

    ROE = Net Profit / Equity. Company B’s ROE = 25% > Company A’s 10%. Hence, B is more efficient in generating return on equity.

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