Which component is critical for determining an investment's return on equities?

The critical component for determining an investment's return on equities is the total return, which includes both capital gains and dividends. This is because equities provide returns through two primary avenues: the increase in the stock price (capital appreciation) and cash payments made to shareholders (dividends).

When assessing the performance of an equity investment, both elements must be considered as they collectively contribute to the overall return. Capital appreciation represents growth in value, while dividends offer a source of income. Neglecting either component would result in an incomplete assessment of the investment's profitability. Thus, to accurately evaluate the return on equities, it is essential to look at the total return, which encompasses both capital gains and dividends.

Other choices focus on individual components, which do not provide a comprehensive view of the return on an equity investment. For example, considering only capital appreciation ignores the income generated from dividends, and solely focusing on dividends overlooks potential growth from price increases. Interest earnings are also not relevant to equities as they pertain to fixed-income investments rather than stock investments.