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In the ROE ratio, the formula says PBIT/shareholders equity but in the opentuition notes the calculation part is using the market value of equity
I have checked the Kaplan and BPP study text and they take the figure of equity straight form the statement of financial position.
So in the exam, which one would be recommended? The SOFP figure or the Market value?
In Paper F2 and F3 (and to an extent in Paper F9) then it is certainly a pure accounts based measure and so it is straight from the accounts.
In Paper F9 – if it is were to be asked simply as a calculation (which to be honest is unlikely) then you would do the same. But much more important in F9 is to be able to discuss why using book values would likely be misleading and that market values would be more sensible (which then would effectively make it earnings yield) but then to point out that it ignores expectations of future growth (just as the PE ratio does).
Ok. Thanks a lot Sir 🙂
You are welcome 🙂