This profitability ratio is available in numerous variants
In addition to the overall viability, sales profitability and return on investment is the return on equity of the best known of profitability ratios.
Return on equity is calculated as the ratio of one for the owner of the relevant company earnings and the size of equity, ie
Return on equity = Profit / Equity
Numerator and denominator of the return on equity
As a result, when the return on equity in general, the net income under profit and loss account (P & L) or an adjusted net income is used, as for example in the context of a successful analysis has been determined.
As the equity return on equity is generally a value used in the preparation of the so-called structural balance (Modern methods of balance sheet analysis) was determined. Often there is the equity value calculated identical to the equity, arising from the normal balance is, in individual cases, but also significant differences between the two approaches of the equity return on equity is available.
Determination of equity to return on equity
As an example of possible corrective steps to determine the profitability of the equity capital is to be used on the following schedule are:
Issued capital
- Unclaimed deposits outstanding
+ Reserves
- Reserves for own shares
Retained earnings + / - loss carryforward
+ Net income
- Distribution for the fiscal year
- Expenses in accordance with Section 269 HGB
- Goodwill value
- Disagio
- Deferred tax
- Equity share of special untaxed reserves
= Equity (EK)
Calculating the return on equity
To calculate the return on equity may qualify for the resulting capital following ways:
Using the adjusted shareholders' equity at end of reference period or
Using the adjusted equity for the period beginning or
Using the average value of equity at the beginning and end of the period.
The market value to determine the return on equity
For listed companies there is also the possibility for the determination of the equity to the market value of the company back. Under market value is the product of the number of issued shares and the exchange rates. To obtain a result of size, such as the annual surplus, about this size in relationship, we obtain the so-called equity returns. On the other hand refers to the ratio of dividend payout and dividend yield than market value.
Stock returns and dividend yield as a percentage to the profit share and return on funds that an investor has, the period beginning with a share of the considered company has acquired. Given the significance of such a crucial figure estimated by the market price depends on the course should start at the beginning of the year.
The price-earnings ratio
To potential investors with a guide for buying and selling decisions that are profit shares and dividends, but also on current exchange rates relative. Instead of the stock return is often the inverse of this expression is used. The resulting price-earnings ratio, which is also known as price-earnings ratio (PER) refers, indicates how much an investor to acquire a stake would have to pay for a performance lasting share of one euro to achieve.
In interpreting these figures should be taken into account that in the past achieved results are not necessarily in the future can be achieved. Moreover, the dividend yield for the assessment of investment success already so limited, since they apply only to the distribution systems.
To avoid this weakness as a further indicator is the so-called defined benefit facility, belonging to the dividend per share during the reference year for the change of exchange rate and adding this value to the market price at the beginning of period applies.
Even this figure, however, only says something about the past and can therefore only subject to the usual restrictions also considered as a meaningful indicator evaluated the future, especially since the development of exchange rates experience fluctuations.
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