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Business Arithmetic — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipBusiness Arithmetic3 Marks
Question
Differentiate between RoE and Rol.
✓

Answer

Return on Equity (ROE) and Return on Investment (Rol), both are profitability ratios. Yet, they differ on the following aspects:
Difference between Return on Equity and Return on Investment are:
Basis
Return on Equity (RoE)
Return on Investment (Rol)
Measure of profitability
Return on Equity is a measure of profitability calculated as a percentage of equity only.
It is a measure of overall profitability of the business.
Concept
It is a narrow concept.
It is a broader concept.
Components
There are two components: (i)Net income
(ii) Shareholders' funds of equity
There are two components:
(i) Net profit
(ii) Total capital employed
Formula
$\text{RoE}=\frac{\text{Net Income}}{\text{Equity}}\times100$
$\text{RoI}=\frac{\text{Net Profit}}{\text{Capital Employed}}\times100$

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