From the course: Running a Profitable Business: Understanding Financial Ratios
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Return on equity
From the course: Running a Profitable Business: Understanding Financial Ratios
Return on equity
- You can see here that we have Uncertain's balance sheet, and their income statement. What can we conclude by looking at this? For starters, we can see that they had total assets of 14,500, sales of 20,000, income of 700. Is that good, is that bad? It's hard to tell, so let's compare them with Benchmark. What can we conclude by looking at Benchmark and Uncerain side by side? Well, the first thing we notice is Benchmark is bigger, and if we do a little mental math, we can conclude, well, it looks like their net income's higher relative to their sales, but just a raw comparison of Benchmark's financial statements with Uncertain's financial statements, that's tough to do. There's got to be a way to compare these two companies of different sizes, so we're going to begin with our first financial ratio, my favorite, and most people's favorite, return on equity. Return on equity is computed by dividing net income by…
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