Return on equity shows what you need to pay attention to when doing business

In modern companies, when analyzing work efficiency, profitability indicators are usually used . There are four types of profitability ratios. The main ones will be considered in this article.

Return on equity shows the success of this company with the ability of its share capital or its inability to create a sufficient level of profit. Also, this profitability is called joint-stock, which clearly reflects its properties at work.

Return on equity shows that it can depend not only on business profits, but also on the ratios of borrowed capital and equity. This ratio is called the leverage effect. Its essence is very simple: the company uses borrowed funds to increase or decrease the return on equity.

The increase or decrease in return on equity, of course, directly depends on the average cost of borrowed capital.

In order to know the level of profitability of a company for any period of time, you just need to compare the return on equity of this company, produced over several years, and other investment instruments, such as government bonds.

Return on equity shows - this is, roughly speaking, the remainder of the division of the net profit of the company into its, of course, equity. Such a view, of course, cannot be called comprehensive.

Return on equity shows - this is the company's net profit / average capital.

Return on equity is characterized by the following phenomena: any company or company has its own capital in the form of shares, finances or any other securities. This capital, of course, is constantly changing: it can increase, and may decrease.

In order to evaluate the performance of this company, you need some tools. The company also has any profit derived from its transactions or production. The net profit in any corporation is the profit that is obtained taking into account all the expenses existing in the company, penalties, and everything else. That is, this is the profit that results. So, in order to understand how well the company works, it is enough to divide this net profit of money into the capital available in this company. This will be the profitability of this campaign in the economic market.

In order to build a successful system that will monitor the financial condition of the enterprise, the following ratios should be used:

1. The overall ratio, which is responsible for the ability of the company to cover its short-term obligations, this will be called the return on equity. The standard is from 1 to 2.
2. The next factor is the urgency of liquidity.
3. The degree of solvency and the dependence of the organization on material costs, shows the liquidity ratio.
4. In order to determine how much money the company raised for 1 ruble, you need to pay attention to the ratio of borrowed and own resources. In successful companies, the ratio should not exceed 0.7.
5. Any enterprise should have its own funds, and their availability shows a security ratio.
6. Another important factor can be called the turnover of working capital. Indeed, sometimes companies resort to using borrowed funds and cannot cover all expenses from their own capital, as a result of which it can be said that the turnovers reproduce insufficient resources in the form of cash, which does not contribute to the development and expansion of the company.