Answer: a faster rate than net income.

Return on equity (ROE) is calculated as net income divided by shareholders' equity. If shareholders' equity increases at a faster rate than net income, the denominator grows more rapidly than the numerator, leading to a decline in ROE. Conversely, if net income grows faster than shareholders' equity, ROE will increase. If both grow at the same rate, ROE remains unchanged. This aligns with the principle that ROE reflects the efficiency of generating profits from shareholders' investments.

Author: LeetQuiz Editorial Team