Unit 5 - Evaluating Performance

Unit 5 - Evaluating Performance

Return on Equity

Return on equity is the rate at which shareholders earn interest on the common stock that they have purchased. It measures the capacity of the firm to generate profits as well as its efficiency. It shows how the company used the investment of shareholders in order to generate profit. An average return on equity of 15% - 20% is considered good for most businesses. Depending on the business and the location of operation, the return on equity can vary significantly. Higher returns in equity tend to increase the share price of ...