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For a levered firm (a firm that uses debt financing), which of the following ratios would ideally indicate the highest return to equity shareholders?
A levered firm uses debt, which creates a financial leverage effect. When a firm earns more on borrowed funds than it pays in interest, the surplus accrues to equity shareholders — amplifying returns. Return on Common Equity (ROE) $= \dfrac{\text{Net Income}}{\text{Shareholders' Equity}}$ captures this magnified return because the denominator (equity) is smaller when the firm uses debt. ROA and ROCE use total assets or capital employed (including debt) as the base, which dilutes the leverage effect.
Who wrote 'Siyasatnama' (The Book of Government)?
Nizam-ul-Mulk Tusi wrote this Persian work on kingship and administration.
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