Return on equity: Difference between revisions
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1. ''Financial reporting and management accounting.'' | |||
(ROE). | (ROE). | ||
A measure of how much profit is enjoyed (or expected to be enjoyed) by equity investors, compared to the book value of the equity investment made. | A measure of how much profit is enjoyed (or expected to be enjoyed) by equity investors, compared to the '''book value''' of the equity investment made. | ||
Profit is measured as profit after tax. | Profit is measured as profit after tax. | ||
| Line 9: | Line 11: | ||
Profit after tax / (book value of equity) | Profit after tax / (book value of equity) | ||
2. ''Corporate finance.'' | |||
(Re). | |||
A measure of how much return is enjoyed (or expected to be enjoyed) by equity investors, compared to the '''market value''' of their shares. | |||
The return includes dividends received and receivable, together with any gain or loss on the market value of the shares. | |||
Subject to any tax differentials, the return on equity to shareholders will be the same as the cost of equity to the issuing company. | |||
== See also == | == See also == | ||
* [[Book value]] | * [[Book value]] | ||
* [[Cost of equity]] | |||
* [[Equity]] | * [[Equity]] | ||
* [[Profit after tax]] | * [[Profit after tax]] | ||
| Line 19: | Line 33: | ||
* [[Return on investment]] | * [[Return on investment]] | ||
* [[Return on shareholders funds]] | * [[Return on shareholders funds]] | ||
* [[ROIC]] | |||
* [[Total shareholder return]] | |||
[[Category:Accounting,_tax_and_regulation]] | [[Category:Accounting,_tax_and_regulation]] | ||
[[Category:Corporate_finance]] | [[Category:Corporate_finance]] | ||
Latest revision as of 21:48, 16 November 2022
1. Financial reporting and management accounting.
(ROE).
A measure of how much profit is enjoyed (or expected to be enjoyed) by equity investors, compared to the book value of the equity investment made.
Profit is measured as profit after tax.
ROE is calculated as:
Profit after tax / (book value of equity)
2. Corporate finance.
(Re).
A measure of how much return is enjoyed (or expected to be enjoyed) by equity investors, compared to the market value of their shares.
The return includes dividends received and receivable, together with any gain or loss on the market value of the shares.
Subject to any tax differentials, the return on equity to shareholders will be the same as the cost of equity to the issuing company.
