Is there any correlation beteen ROE % of a share and divident paid ..as per my understanding
ROE = PAT /total equity
Nowif the company pays divident , will the ROE differ ?
Gibin George (Student) (36 Points)
16 August 2016Is there any correlation beteen ROE % of a share and divident paid ..as per my understanding
ROE = PAT /total equity
Nowif the company pays divident , will the ROE differ ?
Devendra Singh
(Chartered Accountant)
(487 Points)
Replied 16 August 2016
ROE (return on equity) is the return available for distribution to equity shareholders.
ROE = Return available to Equity shareholders/Equity shareholders fund
The company pays dividend to equity shareholders out of these returns only. So if a company has paid a certain percentage of income as dividend, then the return on equity would be as:
ROE = Divident + DDT + Retained earnings
Gibin George
(Student)
(36 Points)
Replied 17 August 2016
PLease could you help me on calculating the ROE final formula:
ROE = (PAT + divident% of PAT ) / ( total equity ) ... would be wrong !!
I have the these values from the company quater results ...
# PAT - 65
#cash profit - 83
# total equity - 603
# Total Divident on equity shares ( in rs) - 1 RS
# total divident percentage - 10%
Devendra Singh
(Chartered Accountant)
(487 Points)
Replied 17 August 2016
In the given case ROE would be 65/603 = .1078 or 10.78%
Gibin George
(Student)
(36 Points)
Replied 17 August 2016
Thanks ..so for confirmation .
the divident paid by the copmpany does not have a say in the ROE .
ROE = PAT /total equity
Devendra Singh
(Chartered Accountant)
(487 Points)
Replied 17 August 2016
Dividend paid is out of the earnings of the company...it is already included in ROE.
And the formula PAT/Equity is correct only when there are no preference shares.
Gibin George
(Student)
(36 Points)
Replied 17 August 2016
Thanks Dev , got it .. but where is the dividend expense shown in the Balance statement ..?
Does it come under current liability ?
Devendra Singh
(Chartered Accountant)
(487 Points)
Replied 17 August 2016
Yes...Dividend payable comes under current liability.
Gibin George
(Student)
(36 Points)
Replied 17 August 2016
Thanks Dev , soo much for your time and valuable info on ROE ..
CAclubindia
