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    Return on Equity (ROE)

    The return on equity (ROE) ratio is calculated by dividing net income after interest and taxes by average shareholder’s equity. We use net income because it gives us an idea about how much income the firm makes after it pays out what is owed to debt holders. What is left over is kept for the firm’s shareholders. It is important to know how much income is kept for the firm’s shareholders in relation to the amount that those shareholders have invested in the firm.

    As a result, the difference between a firms return on assets and return on equity is due to the amount of leverage of the firm. We know that return on assets can also be found as a function of the firm’s profit margin and its asset turnover. As a result, the firm’s return on equity can be found as a function of the firm’s return on assets and its equity multiplier.

    The intuition from these formulas is that a firm can increase its return on equity by increasing its return on assets or by increasing its equity multiplier. It can increase its return on assets by increasing its profit margin or its asset turnover. It can increase its equity multiplier and its asset turnover by reducing the amount of assets it uses. It can also increase its equity multiplier by reducing shareholder’s equity.  

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    Dupont Model and Return on Equity

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    Calculation of ROE: Technology Inc. Exercise.

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    Equity and Rate of Return

    Southern Healthcare and BestWell are for-profit HMOs that operate in Florida and Georgia. Currently, both are identical in every respect except that Southern is unleveraged while BestWell has $10 million of 5 percent bonds. Both HMOs report an EBIT of $2 million and pay corporate tax at a rate of 40 percent. The cost of equity

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    Financial Accounting: Pacific Capital Bank

    Pacific Capital Bank is looking at using the return on equity model and the DuPont formula to measure the performance of certain capital investments. - The Return on Equity looks at net income after tax in relationship to shareholder equity. - The DuPont formula looks at net profit margin in relationship to total asset turnove

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    Determination of change in Return on Equity (ROE)

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    What is a company's "ROE" and "IRR "and how do you calculate it?

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    Normal EPS for GE based on the method of average ROE

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    Debt vs. Equity: Advantages of More Debt Than Equity

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