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PRODUCTION / OPERATIONS MANAGEMENT:
This indicator is another summary of the company’s overall performance, and return on equity. Return on equity
(ROE) is net income after tax (fewer premium dividends).
Shareholders have invested in the company. This ratio reflects the profitability of shareholders’ book value investments and is often used when comparing two or more companies in the industry.
MGT613 HANDOUTS PDF
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MGT613-PRODUCTION / OPERATIONS MANAGEMENT:
The high return on equity often belongs to the company Accepting strong investment opportunities and cost-effective management. However, If a company chooses to assume a high level of debt based on industry standards, the ROE is simply high.
This is the result of accepting excessive financial risks. With all of the profitability ratios discussed, comparing one company to similar companies and industry standards is extremely valuable.
MGT613 HANDOUTS-PRODUCTION / OPERATIONS MANAGEMENT:
Only by comparisons are we able to judge whether the profitability of a particular company is good or bad, and why? Absolute figures provide some insight, but it is relative performance that is most revealing.
If there are two types of Shareholders, the net income applicable to common stock = net income – preferred dividend requirement; and common Stockholders’ equity = total stockholders’ equity – preferred stock equity at issue price – dividend arrears if any.
MGT613 HANDOUTS PDF-PRODUCTION / OPERATIONS MANAGEMENT:
The shareholders would like to see if this rate is higher than the rate of interest paid to long-term creditors or the rate of dividend paid to preferred stockholders? If the return on equity falls below the rate Interestingly, this is counterproductive from a common stockholders’ perspective.