This ratio explains relationship between net profit (after tax and interest and dividend on preference share) and equity share holders' funds. This ratio is expressed in percentage.
Purpose:
Purpose of this ratio is to calculate amount of profit available to take care of equity dividend, transfer to reserves, etc.
Significance:
1) It is useful to the investors while deciding whether to purchase or sale of shares.
2) This ratio helps to make comparative study of equity capital with other company and it will be appreciate if there is high return.
Formula:
Alternatively this ratio may be calculated by using following formula for calculating the return per equity shares.
Components:
1)Net profit after tax & interest and preference dividend.
2)Equity share capital by adding reserves or deducting miscellaneous expenditures.
Give your comments and share your views in the comment section below. Follow me on Twitter @sulthankhan
