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Rate earned on stockholders equity
In a profitability anaylsis how do you figure rate earned on stockholders equity? I know the formula is
rate on stockholders equity = net income/ average total stockholders equity How to you find the average stockholders equity? |
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Same as you'd find any average... observe the stockholders' equity at a number of points in time, add 'em up, then divide by the number of observations.
For example, it's pretty common to look at stockholders' equity at the beginning of the year, and at the end of the year, and divide their sum by 2 to get the average for the year. Generally, though, the more observations you toss into your average, the more accurate the measurement. For example, you could add up the equity amounts that existed at the end of each quarter of a given year, and divide by 4 to the average for the year. You get the idea. |
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