Return on equity shows what you need to pay attention to when doing business

In modern companies in the analysis of the effectiveness of the commonly used indicators of profitability.There are four types of profitability ratios.The main ones are discussed in this article.

Return on equity shows the success of the company with the ability of its share capital or its inability to generate a sufficient level of profit.Also referred to as the return on shareholder that clearly reflects its properties during operation.

Return on equity shows that it may depend not only on the profit in the business, but also on the ratio of debt capital and equity.This ratio is called the leverage effect.Its essence is simple: the company is using borrowed money, to increase or decrease the return on equity.

increase or decrease in return on equity, certainly depends on the index of the average cost of borrowed capital.

To find out the level of profitability of the company for a period of time, we just need to compare the return on equity of the company produced just a few years, and other investment instruments such as government bonds.

Return on equity shows - is roughly the remainder from dividing the net profit of the company, its definitely equity.Such a presentation, of course, can not be considered comprehensive.

Return on equity shows - a company's net profit / average equity.

Return on equity has the following effects: any firm or company has its own capital in the form of shares, finance or even any securities.This capital, of course, is constantly changing: it may increase or may decrease.

In order to evaluate the effectiveness of the company, need any tools.The company also has any profits arising from their transactions or production.Net profit in any corporation, it is the profit that is obtained taking into account all the company expenses, penalties and everything else.That is, this is a gain which is obtained in the end.So, in order to understand how well the company has enough to share the net profit of the money on the capital available in the company.This will be the profitability of the campaign in the market economy.

In order to build a successful system that will monitor the financial condition of the company, you should use the following factors:

  1. crude, which is responsible for the ability of firms to cover their short-term liabilities, it will be called the return on equity.The ratio is 1 to 2.
  2. Another factor is the maturity of liquidity.
  3. degree of solvency and affiliates of material costs, shows the liquidity ratio.
  4. In order to determine the amount of funds the company raised to 1 ruble, you must pay attention to the ratio of debt and equity resources.In successful companies, the ratio should not exceed 0.7.
  5. Any company must have own funds, and their presence indicates a ratio of.
  6. Another important factor may be called the turnover of working capital.It is sometimes resorted to the use of leverage and may not cover all the costs of equity, whereby it is possible to say that the momentum reproduce insufficient resources in the form of cash that is not conducive to the development and expansion of the company.