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Hi all. I have a question on the ACCA study hub
Topic 10.3
Why do we need to deduct the retained profit from total assets when calculating the return on share holders.The profit was 100 000
The retained profit is 60 000
Total assets 1 060 000
To get the rate of return on those retained profits the formular the retained profits were deducted.=100 000/(1 060 000-60 000)
Why are we deduction 60 000You calculate the return on the remaining assets after accounting for the retained profits, which reflects the actual return on the equity that shareholders have invested.
So by deducting the retained profits, you are isolating the return on the assets that are available for distribution to shareholders, thus providing a clearer picture of the return on their investment.
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