What is the equation and explanation for the following accounting ratios?
ROE = Net Profit / Average Shareholders’ equity. This tells you the accounting profit that the company generated for common shareholders over the course of the year. Return on Shareholders Funds is usually the same thing. But, to be picky, it also includes ALL equity holders including preferred and minority shareholders. The formula is (Profit before minority interests) / (Average balance of Common, Minority and Preferred Shareholders). It is the return on equity holders, not just the common shareholders.
