See: Return On Average Assets - ROAA.
Shareholders' equity measures the difference between a company's assets and its liabilities. Add up everything a company owns (that gives you the asset figure). From that, subtract everything the company owes (the liability number).
You're left with shareholders' equity, or book value. (Like Ulysses/Odysseus or Puff Daddy/P. Diddy, the term goes by two names.)
To figure out return on average equity, a company divides its net income (after taxes) by its average shareholders' equity. The average equity figure is derived by adding the amount of shareholder equity at the beginning of a financial period with the amount at the end, then dividing by two. Taking the average takes into account the change over time.
Related or Semi-related Video
Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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