This is a ratio that focuses on the return earned by owners on their investment in their business.

It is simply calculated by dividing the net income of the business by the shareholders / businesses equity.

Return on Equity is effected by:

1.     Profit; and

2.     Net asset. 

Net assets is calculated by taking the liabilities of the business from the assets.  By reducing the net assets and increasing the profit of your business, your return on equity will improve. 

5 methods for improving your Return on Equity in your business include:

1.     Increase your sales / revenue;

2.     Reduce your expenses;

3.     Reduce your levels of inventory;

4.     Reduce your debtors / receivables;

5.     Increase creditors payment terms.

If you would like to discuss further please contact us:

McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD

www.mcnamaraandcompany.com.au/contact-us

Phone +61 3 9428 1062

Email admin@mcnamaraandco.com