ROE? Profit before or after tax

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Pigpen
Pigpen Registered Posts: 331 Dedicated contributor 🦉
in AAT Level 4 (Level 8 in Scotland)
In my text book (BPP) ROE is listed as Profit on ordinary activities before tax / Equity

On exam question 2.1 June 2008 for DFS they calculate it as PATI/equity - The figure they have used for Pati is 455/7372 x100 (455 is the profit after tax)

Confused :001_unsure::confused1:

Which one is correct?

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  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Hi Pigpen,

    Return on equity is calculated as net profit (after tax profit) divided by equity. It shows the net performance of the company in relation to the equity invested in the company by the shareholders.

    Are you looking at return on capital employed (ROCE) in the BPP book perhaps? This formula uses EBIT (earnings before interest and tax)

    Best wishes
    Steve
  • Pigpen
    Pigpen Registered Posts: 331 Dedicated contributor 🦉
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    Thanks Steve - I just went back and rechecked - Page 217 of their course companion - Even checked the figures they used - They are definitley using the Before tax figure - I will adjust my revision notes accordingly - You are a star - Have a fab holiday - Going anywhere nice?

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