Return on Equity
An evaluation of profit earned in relation to equity resources invested. It is calculated by dividing net profit before abnormals by shareholders' equity.
By comparing return on capital to return on equity, investors can determine whether a company's financial leverage has benefited shareholders. If return on equity is higher than return on capital, it indicates the company's debt has provided a positive return to shareholders. If the opposite is true, it indicates the company's current leverage is reducing returns to shareholders.
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