Question

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%?

Answer 1

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.