hehe, Q on "return on OE ratio" (1 Viewer)

[Grey Council]

what is the "return on Owner's Equity" ratio?

book definition:

net profit (after tax)
-------------------------
Owner'e Equity

some notes our teacher gave us define it as:

net profit (before tax)
-------------------------
OE

wtf, im confused.

anyway, does it matter?

 

[nova]

Should be something like this

Profit : Owners equity

ie. the amount the business made in relation to the amount initially invested.

 

[Grey Council]

hrm

I know its
net profit : owners equity
but is it net profit before tax or after tax?

does it even matter? mmm

 

[truly-in-bliss]

net profit is after tax, gross profit is before tax

 

[Grey Council]

hehe, teacher said it doesn't matter.

 

[*hopeful*]

but it does
because if ur gonna put net profit (b4 tax) well thats gross profit then (like tib said)
but 4 return on OE u gotta put actual NP ie after tax

 

[*hopeful*]

no but it does
because if u put NP (b4 tax) well thats GP then (like tib said)
but for return on OE u must put NP (after tax)

 

[*hopeful*]

oops sorry
i thought the reply hadnt gone thru

 

[Aj10001]

Dont worry about all the Tax bullshit, you simply use the net profit figure which is displayed on the balance sheet. Thats what we did last year anyway.

 

[Grey Council]

yup, as AJ10001 said.

anyway, i think your a little mistaken, *hopeful*.
hehe, netprofit is gross profit minus EXPENSES, not tax. hrm, i suppose its after tax as well (i think) but netprofit (after tax) minus tax charged does NOT give you gross profit.

thanks anyway. I think i'll do what AJ said: use the figure given. I doubt they will give us net profit after tax and net profit before tax, and then ask us to figure out Return on OE's equity.

 

[*hopeful*]

generally its after tax but u arent gonna get tax figures on ur balance sheets so yeh 4get that
but i didnt say that np after tax is gp
newayz doesnt matter

 

[Grey Council]

oh k, sorry. Thought you meant:

if u put NP (b4 tax) well thats GP then

sorry, misunderstood that bit.

 

[AGB]

gross profit = revenue - COGS

where some people are getting mixed up is the difference between EBITDA/EBIT/Net profit.

EBITDA = earnings before interest, tax, depreciation, amortisation
EBIT = earnings before interest, tax
Net profit = earnings after interest and tax

 

[luke_j1984]

Return On Owners' Equity Ratio

return on owners' equity = net profit * 100 / owners' equity

PROBLEM! Before or after tax. This is a really complicated question! Logically you would think it would be net profit (after tax) as gross (usually means before tax), but in the text book i have: BUSINESS STUDIES HSC - D. Sykes, V. Hansen, E. Codsi, return on owners' equity ratio is on page 130, then there is a exercise related to the viewing of a revenue statment & a balance sheet (page 131). Answers in the back of the book (page 523) use the net profit (before tax). My teacher said it is after tax! Remembering these formulas is hard enough, figuring out which one to belief is even worse. I also have a problem with the solvency (debt to equity) gearing ratio. In text book the formula is long term debt * 100 / shareholders' equity. Teacher said it should be total liabilities / owners' equity. Can anyone who has done the HSC or has a good amount of knowledge on financial ratios please HELP ME OUT! Thanks