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When computing the return on equity, retained earnings should be excluded from the average total stockholders' equity.
Return On Equity
This is a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how much profit a company generates with the money shareholders have invested.
Retained Earnings
Retained earnings represent the cumulative amount of net income a company retains for reinvestment in its operations rather than paying it out as dividends.
Stockholders' Equity
The residual interest in the assets of a corporation after deducting its liabilities, representing ownership interest.
- Gain an understanding of how to determine returns, with an emphasis on return on total assets and return on equity, and their importance in assessing holistic financial performance.
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Learning Objectives
- Gain an understanding of how to determine returns, with an emphasis on return on total assets and return on equity, and their importance in assessing holistic financial performance.
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