Return on Equity = Earnings Before Taxes (EBT) / Equity – Measures the efficiency with which Equity is employed in a business. A high ratio is an indication that the business is prospering and this may be due
- to successful management,
- to the appropriate use of its Equity as well as
- to favorable economic conditions prevailing at the given time.
Business actions to improve the Ratio
- Increase Earnings Before Taxes (EBT)
- Reduce Equity through dividend payments to shareholders or through Increase in provisions
