What is your interpretation if you know the return on equity (ROE) of a company was 10% and its return on asset (ROA) was 5%?
Return on Equity : ROE is a process of financial performence calculated by devided net income by shareholders equity.
Because shareholders equity is equal to a companies assets minus its debt.
ROE = Net income / Avarage Shareholder's Equity
If the return on equity of a company was10% of its net income to shareholders for a retention ratio of 90%.
Return on Assets : ROA is measures how much profit earned a compny or an organisation relatives to its total assets.ROA gives a supervisor investors or executives an idea how much generate earning using of its assets.
ROA = Net Income / Total Assets
If ROA was 5% it means the company has invested in assets generates 5% of net income.
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