Return on equity :-
[tex]$=(\$ 36,000 / \$ 428,000) \times 1.2 \times(1+0.4)\\[/tex]
[tex]=14.13$ percent[/tex]
The efficiency with which a corporation generates returns on the investments made by its shareholders is measured by its return on equity. Description: The formula for return on equity is net income or profits divided by the equity of the shareholders. In essence, the denominator is the difference between a company's assets and liabilities.
Analysts simply divide the company's net income by its average shareholders' equity to arrive at ROE. ROE is essentially a measurement of the return made on the net assets of the company because shareholders' equity is equal to assets less liabilities.
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