This ratio measures the relationship between net profit after tax & interest and proprietors fund. This ratio is alternatively known as "Return on proprietors' equity" or "Return on shareholders' investment" or "Investors' ratio". This ratio is expressed in percentage. Purpose of this ratio is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the concern is in managing owners' funds at its disposal. This ratio is very significant to prospective investors and shareholders. With the help of this ratio company can decide to rise finance from external sources even from public deposit it ratio is satisfactory. Shareholders can expect to capitalize its reserves and issue bonus shares when ratio is higher for reasonable period of time.
Formula:
Components:
1) Net profit after tax and interest
2) Proprietors' funds
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