Return on Owner's Equity Ratio Qu (2 Viewers)

[little-fongie]

I'm confused with this ratio - I know it's
Net Profit/Owners Equity x 100 (i also read its over Total owners equity)

But would the owners equity only be equal to the initial money put in by owners?
Eg. In my exam there was a balance sheet with
Sharholders Equity
- Issued Capital 292 000
- Net profit 58 000

I got ROE= 58000/350000 x 100
but my teacher crossed out the 350 000 and said it was meant to be 292000 (capital). I was reading on this thread http://community.boredofstudies.org/showthread.php?t=105035&highlight=return+on+owner%27s+equity
that you do include the net profit in the owners equity part, is this right or is it just different if you express it as ratio or fraction or something?

 

[crazyymonkey]

owners equity is only the money put it by the owner or shareholders.

so the ROE = net profit/ owners quity
= 58000/292 000

pretty much think of it as this.
return on owners equity is the amount of profit paid back to the owner or shareholder as a percentage of there original contribution.

so to add the net profit into the owners equity wouldnt be calculating the percentage of there original contribution.

so without the blah blah.
you do not add net profit.

 

[crazyymonkey]

and if it helps

capital = owners equity

so there fore
why add the net profit to the capital.

if you get me.

 

[little-fongie]

yep, i think i get you, net profit is not included in owner's equity
but what about retained profits/retained earnings - because isn't that the same as net profit although it is listed under the owner's equity section of the balance sheet?

 

[michael1990]

yep, i think i get you, net profit is not included in owner's equity
but what about retained profits/retained earnings - because isn't that the same as net profit although it is listed under the owner's equity section of the balance sheet?

I just looked in 3 textbooks.
Some state you can use both retained profits and owners equity.
So its up to you.