Return on Equity

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Help................

Please could someone confirm which is the correct figure to use in the calculation of return on equity.

In some answers it seems to be profit before tax but in other answers it seems to be profit from operations. Which one is correct?

Anne

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    Well, we were taught it as Profit for the Year - i.e after tax and interest. I hope it's right!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    Is this not the same ratio as Return on Capital Employed :?

    If it is its this is the formula:

    P.B.I.T Profit on ordinary activities Before Interest and Taxation
    Capital employed/Equity

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    Hi Dean

    There is ROCE which is as you stated, profit before interest and tax(ie profit from operations). But sometimes the exam asks for ROE (return on Equity)
    Which profit figure do you use for this, as in BPP books it states profit before tax, however in Osborne tutor book, practice exam 1 it uses Profit for the year (ie profit after tax)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    Return on equity is Profit after tax and preference shares/equity and share reserve

    Return on capital employed = Profit before tax and interest/Capital employed.

    PM
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    Ok, you even made me get my old revision notes out :lol:

    I don't seem to have a ROE all my notes say ROCE but with different calculations so I think you're using what I would call "Return on shareholders' capital" which is:

    Profit After Tax (PAT)
    share capital plus reserves

    Sorry if im confussing you :(

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    Hi Dean

    Many thanks for that.

    Anne :
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity

    i did the practice exam out of osbourne as well and had the same query, i was going to check with my tutor but thanks for answering it. :lol:

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