Why Calculate the Return on Equity Ratio?
Return on equity is helpful to know whether the firm uses the money of the shareholders properly or not. Profits are earned only if the business ethics are followed and smart decisions are taken by sensing business opportunities. Return on investment for shareholders will help to analyze the operational efficiency of the organization as without efficient daily operations, maintaining the sales and profit margins is not possible. By comparing the return on equity of a firm with its peers in the same sector, we can find out which company is more profitable and the reasons behind the same. If we conclude that the return on equity is low for the stock we have purchased, then we can always switch over to high return on equity company to safeguard our investments. A falling return on equity can be due to poor management or fluctuating business environments. High debts can also be a reason for low returns to shareholders. From the return on equity calculation for companies belonging to differ
