Return on Equity, also
known as Return on Networth or Return on Shareholders Funds, indicates
profitability of a company by measuring how much the shareholders earned for
their investment in the company. The higher the percentage, the more efficiently
equity base has been utilized, indicating better return to
investors.
RoE is ratio of net income (available for equity shareholders) to average shareholders' equity.
RoE = __________________Profit After Tax__________________
Equity Share capital + Free Reserves - Miscellaneous Expd.
E.g. If net profit is Rs.100 crore, Equity share capital is Rs.100 crore, Reserves and Surplus is Rs.900 crore, Miscellaneous Expd. Nil
RoE = 100___
100 + 900
Return on Equity is 10%.
RoE is ratio of net income (available for equity shareholders) to average shareholders' equity.
RoE = __________________Profit After Tax__________________
Equity Share capital + Free Reserves - Miscellaneous Expd.
E.g. If net profit is Rs.100 crore, Equity share capital is Rs.100 crore, Reserves and Surplus is Rs.900 crore, Miscellaneous Expd. Nil
RoE = 100___
100 + 900
Return on Equity is 10%.
