Return on equity -Net profit ( net earnings)*100/Total outstanding equity
This gives the return from a shareholder's perspective and does not reflect how well the accumulted shareholder's money ( reflected in Reserves and surplus ) is utilised.
Better parameter would be Return on networth
This is Net profit after taxes *100/ Networth of the company constituting Equity and reserves & surplus.
This again does not reflect how well the total funds of the company( including borrowed funds are deployed. For that one has to take int o consideration the net ptofit before interest /total capital deployed
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