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If you owned a business that had a net worth [shareholder's equity] of $600 million dollars and it made $36 million in profit

What is the earning on the equity?
What is the formula?
Can it be written in percentage?

What is the formula for IRR?

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First of all, it is not earning on Equity but return on Equity. The formula for calculating Return on Equity is:

Net income/ Shareholder's equity.

One of the most important profitability metrics is return on equity [or ROE for short]. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. A business that has a high return on equity is more likely to be one that is capable of generating cash internally.

Source: http://beginnersinvest.about.com/library/lessons/bl-returnonequity.htm

In this case it will be: 36/600=.06 or 6%

Yes, it is expressed as a percentage.


Often used in capital budgeting, it's the interest rate that makes net present value of all cash flow equal zero. Essentially, this is the return that a company would earn if it expanded or invested in itself, rather than investing that money elsewhere.

Source: http://www.investopedia.com/terms/i/irr.asp

The formula ...

Solution Summary

The return on equity for shareholder's are examined. The written percentages and formulas are given.