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Hi, everyone
I need your thoughts on the following example regarding ROE calculation:
Let say opening balance of equity is negative $100, net profit for period of $101, and closing balance of equity of $1 (as a sum of (100)+101). How to correctly calculate ROE and interpret figures.
1. Denominator = opening equity: ROE = 101/(100)*100% = minus 101%
2. Denominator = closing equity: ROE = 101/1*100% = 10,100%
3. Denominator = average equity: ROE = 101/[(-100+1)/2]*100% = minus 204%Hi,
Very interesting question. I think in such situations ROE is meaningless. It would be great to look at opposite opinion.
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