Question : ___________ is a measure of the efficiency of banks in managing their assets.
Option 1: Return on assets (ROA)
Option 2: Return on equity (ROE)
Option 3: Liquidity ratio
Option 4: Capital adequacy ratio (CAR)
Correct Answer: Return on assets (ROA)
Solution : The correct answer is (a) Return on assets (ROA).
Return on assets is a financial ratio that measures the profitability and efficiency of a bank in managing its assets. It indicates how effectively a bank generates profits from its total assets.
ROA is calculated by dividing the net income of the bank by its average total assets. The ratio represents the percentage of net income earned for each unit of assets employed by the bank. A higher ROA indicates better efficiency and profitability in utilizing the bank's assets to generate earnings.
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