“Return on equity” is a term that reflects the net income to every shareholder on the nominal shares holding. It is the most important derivation calculated by dividing net income to the total shareholders. The net income is derived after deducting the various expenditures incurred by the company from the gross income earned. It is reflection of the performance of the company and the attractive fact for the prospect shareholders.

The various terminology involved in deriving the same are majorly related to performance of business. The activities carried out by the company and the income and expenses related to the same. The money is raised through public offer and by issuing preferences shares. The business image of the company is reflected through the financial statement of the company and it includes this formula at prime.

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