In not-for-profit organizations, return on equity is typically viewed as irrelevant.

• A. True
• B. False
• C. Not applicable
• D. Depends

Answer: (B)

Not-for-profit organizations don’t have owners or shareholders, so there’s no owners’ equity to earn a return on. They report net assets instead of equity, and the goal is to advance the mission with available resources, not to generate a return for owners. Because there is no equity base, the classic return on equity ratio isn’t a meaningful or standard performance metric in this setting. If a related metric were considered, it would be return on net assets or program efficiency, but the traditional ROE concept simply isn’t applicable here. So the statement is not correct; ROE isn’t applicable in not-for-profit organizations.