All else equal, when investors consider a firm's return on equity (ROE) they consider less risky a firm that earns proportionately more of that return from operating activities as opposed to nonoperating activities. Select one: True False

Question

Business

Alena Sims

22 July, 19:00

All else equal, when investors consider a firm's return on equity (ROE) they consider less risky a firm that earns proportionately more of that return from operating activities as opposed to nonoperating activities. Select one: True False

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Gillespie · Answer 1

True

Explanation:

Return from operating activities are returns made from the regular and recurring operations of a business. Since they are from the normal operations of a company, they are less risky than returns made from the non-operating activities of a company which do not re-occur.

As such, a firm that earns more of its return from operating activities which are recurring is usually considered less risky than a firm than earns more of its return from non-operating activities which are usually one-off.