Return on Total Shareholders Equity
According to this ratio, profitability is measured by dividing the net profits after taxes (but before preference dividend) by the average total shareholders equity, The term shareholders equity includes (i) preference share capital; (ii) ordinary shareholders equity consisting of (a) equity share capital, (b) share premium, and (c) reserves and surplus less accumulated losses. ‘The ordinary shareholders equity is also referred to as net worth. Thus,
The ratio reveals how profitably the owners funds have been utilized by the firm. A comparison of this ratio with that of similar firms as also with the industry average will throw light on the relative performance and strength of the firm.