BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -Stockholders’ equity increases due to additional stock investments or additional net income. It decreases due to a net loss or dividend payouts. Retained earnings increases when revenue accounts are closed out into it and decreases when expense accounts and cash dividends are closed out into it.

Detailed explanation-2: -Your retained earnings are the profits that your business has earned minus any stock dividends or other distributions. It can be a clearer indicator of financial health than a company’s profits because you can have a positive net income but once dividends are paid out, you have a negative cash flow.

Detailed explanation-3: -A D/E ratio of 2 indicates that the company derives two-thirds of its capital financing from debt and one-third from shareholder equity, so it borrows twice as much funding as it owns (2 debt units for every 1 equity unit).

Detailed explanation-4: -ROE considers profits generated on shareholders’ equity, but ROCE is the primary measure of how efficiently a company utilizes all available capital to generate additional profits. It can be more closely analyzed with ROE by substituting net income for EBIT in the calculation for ROCE.