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Hi John
I have a question where the return of equity are: net profit/equity
Yr 1 – 22086/116707 = 18.9
Yr 2 – 27474/127020 = 21.6
Yr 3 – 25387/130648 = 19.4
Yr 4 – 28179/155236 = 18.2
Yr 5 – 29997/156537 = 19.2could you just explain to me why the ROE is decreasing between Yr 2,3,4?
It is simply because the amount of equity has increased more (in % terms) than the net profit. As the amount of finance increases we would expect the profit to increase as well. If the profit increases at a faster rate then the ROE will increase. If it increases at a slower rate then the ROE will decrease.
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