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04 Analysis and financial ratios > Return on equity: earnings per share - Pg. 44

44 FInAnCIAl MAnAGEMEnT FoR non-FInAnCIAl MAnAGERS Example: If a company makes a profit before interest and tax of 250,000 when shareholders' funds were 500,000 and term loans were 100,000 then the ROCE would be: ROCE = 250,000 500,000 + 100,000 ROCE = 42 per cent This means that for every 1 of capital employed in the company there is a profit (before interest and tax) of 0.42 Return on equity: earnings per share The return on equity (ROE) ratio shows the rate of return achieved by the equity investors in a company. It is expressed as the percentage of profit before interest and tax (PBIT) is to equity.