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ADMINISTRATIVE LAW AND ACCOUNTABILITY:
It is another summary measure of overall firm performance is the return on equity. Return on equity (ROE) compares net profit after taxes (minus preferred stock dividends, if any) to the equity that shareholders have invested in the firm.
MGT621 HANDOUTS PDF
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The ratio tells us the earning power of shareholders ‘ book value investment and is frequently used in comparing two or more firms in an industry. A high return on equity often reflects the firm’s acceptance of strong investment opportunities and effective expense management.
MGT621-ADMINISTRATIVE LAW AND ACCOUNTABILITY:
However, if the firm has chosen to employ a level of debt that is high by industry standards, a high ROE might simply be the result of assuming excessive financial risk.
After you’ve discussed all the rates of return, comparing a company to a similar company and Industry standards is very valuable. Only by comparing we Is the profitability of a particular company good or bad, and why? Absolute values provide an overview, But the most obvious is relative performance.
MGT621 HANDOUTS-ADMINISTRATIVE LAW AND ACCOUNTABILITY:
If there are two types of shareholders, net income is applied to common stock = net amount Income Priority and Common Shareholder Requirements = Total Shareholders Shares Preferred Shares at Issue Price – Dividends Past Due (if any).
MGT621 HANDOUTS PDF-ADMINISTRATIVE LAW AND ACCOUNTABILITY:
Do shareholders want to know if this rate is higher than the rate paid to long-term creditors or the dividend paid to preferred shareholders? When the return on equity falls below the rate Importantly, it is unfavorable from the perspective of ordinary shareholders.