IPA IP 2020 Question 30
A question IPA Japan published in 令和2年度 10月 ITパスポート試験 公開問題 問30, translated into English. ITPEC is based on the same exams.
Same question on ITPEC: Apr 2026 Q68 +2 more
Which of the following represents the “E” in ROE that is an index for the measurement of a company’s profitability?
Explanation
Equity — ROE is return on equity: net income divided by shareholders' equity.
ROE shows how efficiently a company turns the capital its shareholders have invested into profit: ROE (%) = net income ÷ shareholders' equity × 100. A company with net income of 10 million dollars and equity of 100 million dollars has an ROE of 10%. The related ROA (return on assets) divides the same profit by total assets instead.
Answer (d)
Why not others:
- •(a) Earnings — earnings (profit) are the return, the numerator of the ratio; the E is its denominator
- •(b) Employee — profit per employee is a productivity measure, not ROE
- •(c) Enterprise — not part of this ratio; enterprise value belongs to valuation measures such as EV/EBITDA
Key rule: ROE = profit ÷ shareholders' equity measures the return to the owners; ROA = profit ÷ total assets measures the return on everything the company uses, including borrowed money.
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This question comes from the past questions IPA Japan publishes, translated into English by ITPEC Practice. ITPEC Practice is an independent study tool and is not affiliated with IPA or ITPEC. See the original paper (PDF) or Report an issue.