​From the viewpoint of stockholder, which of the following relationships is of the least significance?​

Correct option is C

From the viewpoint of a stockholder, the focus is primarily on how efficiently the company is generating returns on their equity investments and maximizing shareholder wealth. Stockholders are more concerned about profitability, equity returns, and value creation rather than liquidity or internal comparisons of income to working capital.

"Net income is greater than the amount of working capital" – is the least significant to a stockholder because:

• Working capital is a liquidity measure (current assets minus current liabilities), not a profitability or return indicator.

• A higher net income than working capital doesn’t necessarily signal improved shareholder returns or performance.

• This comparison lacks relevance unless analyzed in the context of operational efficiency or cash flow analysis, which isn’t the primary focus of a stockholder.

• The absolute comparison of net income and working capital doesn’t provide any valuable ratio or insight into shareholder returns.

In contrast, return on equity (ROE), return on assets (ROA), and interest cost comparisons are more direct indicators of value creation and profitability.

Information Booster:

• Net income is a profitability figure, while working capital reflects short-term liquidity.

• Their direct comparison doesn’t yield much meaningful information for equity investors.

• Stockholders would instead prefer ratios like Return on Equity (ROE), Earnings Per Share (EPS), or Dividend Yield to evaluate company performance.

• The statement in (c) does not capture efficiency, profitability, or shareholder return metrics, hence it is of least relevance.

Additional Knowledge:

(a) The return on assets is consistently higher than the industry average

• Indicates better use of total assets in generating income compared to peers.

• Higher ROA often signals efficient management and strong financial health, important for stockholders.

• It reflects how well a company is utilizing its assets to generate earnings – a useful signal for investors.

(b) The return on equity has increased in each of the past five years

• This is a key performance indicator for stockholders.

• ROE reflects how much return is being earned on shareholders’ capital.

• An increasing ROE trend suggests growing shareholder value, hence very significant for stockholders.

(d) The return on assets is greater than the rate of interest being paid to the lenders

• Indicates that the company is earning more on assets than it is paying in borrowing costs, implying positive leverage.

• This improves return on equity due to financial leverage, which is a favorable sign for stockholders.