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Darla Price

Return on Equity (RoE)

ROE refers to the amount of profit that is generated out of shareholder's equity. It can be said that it is the amount of money that is earn against the amount of money invested. Advantage of RoE is that it shows the pattern of earning in the past and helps to forecast and budget for future whereas it also has a disadvantage. Disadvantage is that shareholder's equity must be decreases in order to increase the return on equity (Baker & Powell, 2005). This phenomenon is working because of Shareholders' equity is in the denominator of the formula ...