Return on Equity - Help please.

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I've been revising ratios and have come across conflicting ratios.

In the june 2003 past paper answers it sstate ROE is profit b4 tax over share cap + reserves.

In the osborn book it states ROE is Profit after tax over share cap and reserves.

so which is it? before or after tax.

my assumption would be after tax as that's what is left to pay the shareholders. You know what they say about assumptions though!

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity - Help please.

    After- for the reasons you have said


    If you forget a formula then don't be afraid to use logic to make one up. Then
      State the formula
      show that you have put the appropriate numbers into your formula
      show the value of the ratio


    There will be marks for the formula but also for correctly using the figures you use.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Return on Equity - Help please.
    zimara wrote:
    I've been revising ratios and have come across conflicting ratios.

    In the june 2003 past paper answers it sstate ROE is profit b4 tax over share cap + reserves.

    In the osborn book it states ROE is Profit after tax over share cap and reserves.

    so which is it? before or after tax.

    my assumption would be after tax as that's what is left to pay the shareholders. You know what they say about assumptions though!

    Return on Equity is...

    Profit after interest & preference dividends but before tax / Share Capital & Reserves
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Return on Equity - Help please.

    Please ignore.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Return on Equity - Help please.

    Please ignore
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Return on Equity - Help please.

    Hi,

    My guess is you may have missed out Preference Dividends? (if there are any)

    The formula is Profit AFTER Tax less Any Preference Dividends Divided by Equity.

    Equity being:

    Ordinary Share Capital +
    Share Premium +
    Reserves

    Hope this helps!

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