FINAL TEST (MUSDALIFAH/36109039/ 3BD3

RETURN ON EQUITY

 

CREATED BY

MUSDALIFAH

3BD3

36109039

STATE POLYTECHNIC OF UJUNG PANDANG

2013

RETURN ON COMMON SHARE HOLDER’S EQUITY (ROCE)

OR RETURN ON EQUITY (ROE)

A.    Definition of Profitability Analysis

Analyzing the profitability of the company is one of the main part of financial statement analysis. Profitability analysis is an analysis of the operating performance of a company. Analysis of profitability (profitability analysis) or also called profitability analysis is an analysis of the company's ability produce earnings. In general, the profitability of the company is based on two aspects, that are Profitability based on income and expenses and profitability based on investment.

B.     Scope of Profitability Analysis.

1.      Profitability based on income and expenses,

Revenue and expenses  is the main component that performing the profits or losses of a company. Company get revenue from operating activities like sales good or service and non-operating activities or also called other income. Profitability analysis is based on idea that profit is part of income after reduce with expenses. There are three methods can use for income and expense analysis :

a)      Operating Costs Analysis

b)      Cost Of Goods Sold Analysis

c)      Non Operating Costs Analysis

2.      Profitability based on investment

Measuring the profitability of the company  not only based on income and expenses but also based on investment. Investment activity that done by company will produce output in the form of goods or services, then the output is sold to get revenue, and finally revenue will produce profit. Investment can indicated by the large investment of capital expenditures for company activity. There are three methods to analyze investment of the company:

1.      Return On Invested Capital (ROIC) Analysis

2.      Return On Common Shareholders’ Equity (ROCE) or Return On Equity (ROE) Analysis

3.      Cash Return On Assets (CROA) Analysis

C.     Return on Equity (ROE) Analysis

Return on common shareholder’s equity  (ROCE) also known as return on equity (ROE) is one of the tools to measure the profitability of a company. Specifically, ROCE show productivity of common stock can produce profit for company.

Formula that use in ROE:

 

 In 2008, every equity of common stock can produce net income about 57,68%. In 2009, every equity of common stock can produce net income about 82,75%.