Return on Ordinary Shareholders’ Equity (Net worth):
It measures the return on the total equity funds of ordinary shareholders.
Preference shareholders are also the owners of firm, but equity shareholders are real owners who bears all risk, participate in management and are entitled to all the profits remaining after all outside claims including preference dividends are met in full.
It is calculated by dividing the profits after taxes and preference dividend by the average equity of the ordinary shareholders.
It helps to judge the firm has earned
a satisfactory return for its equity-holders or not.
It helps to compare with past results, inter-firm comparison, comparison with the overall industry average.
No comments:
Post a Comment