Question: Return on equity ROE can be estimated using financial statements
Return on equity (ROE) can be estimated using financial statements (book value) or financial market data (market value). The book value of ROE over an accounting period is earnings after tax divided by owners’ equity. The market value of ROE is the return that an investor would have experienced during the same period. It is the difference in share price plus dividend paid during the period divided by the share price at the beginning of the period. Why are the two ratios different? If the market ROE is more relevant to any investor, what is the use of the book ROE?
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