Question
Company A and Company B both have a net income of ₹5
crores. However, Company A has equity of ₹50 crores while Company B has equity of ₹20 crores. Based on ROE, which company is more efficient?Solution
ROE = Net Profit / Equity. Company B’s ROE = 25% > Company A’s 10%. Hence, B is more efficient in generating return on equity.
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