The ratio of net profit to total owners' equity is called return on:

• A. Assets
• B. Equity
• C. Investment
• D. Sales

Answer: (B)

Verified step by step guidance

1. Understand the concept: The ratio of net profit to total owners' equity is a financial metric used to measure the profitability of a company relative to the equity invested by its owners. This ratio is commonly referred to as 'Return on Equity (ROE)'.
2. Identify the formula for Return on Equity (ROE): ROE is calculated using the formula: $\frac{\mathrm{Net Profit}}{\mathrm{Total Owners\text{'} Equity}}$. This formula expresses the percentage of profit generated for each dollar of equity invested.
3. Clarify the components: Net profit refers to the earnings remaining after all expenses, taxes, and costs have been deducted from total revenue. Total owners' equity represents the total investment made by the owners, including retained earnings and contributed capital.
4. Relate the formula to the options provided: The term 'Return on Equity' directly corresponds to the ratio of net profit to total owners' equity. This distinguishes it from other financial metrics such as Return on Assets, Return on Investment, or Return on Sales.
5. Conclude the explanation: Based on the formula and the definition, the correct answer is 'Equity', as the ratio specifically measures the return generated on the owners' equity invested in the business.