NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
A company reports: net profit Rs 60 crore, equity share capital Rs 100 crore, reserves Rs 200 crore, and no preference capital. What is its return on equity (ROE)?
ROE is 20%. Shareholders' equity is share capital plus reserves, Rs 300 crore, and net profit of Rs 60 crore divided by that gives 20%. Using only share capital would wrongly give 60%.
- A60%
- B30%
- C20%Correct
- D15%
Explanation
Shareholders' equity = 100 + 200 = Rs 300 crore. ROE = 60 / 300 = 20%. Using only share capital gives 60%, a common mistake of ignoring reserves.
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