|
Return
on Shareholders’ Fund %
|
net
profit bt x 100 |
|
shareholders’
funds (bottom of balance sheet) |
Benchmark:
20-25%
Net
profit (profit before taxation) as a percentage of shareholders’ fund (money
supplied by shareholders, reserves and the balance from the profit and loss
account).
Shows
the profit generated from the total financial investment in the company,
generated from and on behalf of the shareholders.
The ratio gives an indication
of how viable it is for the company to raise further funds for expansion (or to
cut borrowings) via rights issues. Rights issues
(the issue of more shares) increases the bottom line of the equation
(shareholders’ funds) and, hence, the ratio value if profit remains the same.
Earnings per share will also go down.
Hence rights issues should
only be viable for companies showing an above average return with future
prospects good in terms of profit.
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