Chapter 14, Problem 5BTN

Requirement 1:

To determine

Whether to accept the decision or not based on the return on equity

To determine

Concept Introduction:

Analysis of Financial Statements

Analysis of Financial Statements is a study of several key metrics of a company based on the data presented in its' financial statements with an objective to evaluate the financial health of a company.

It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

Return on Shareholders' Equity − A measure of the total earnings of the equity share holders in proportion to the share capital introduced by them.

It seeks to measure the proportion of the total earnings in relation to the investment made and is an effective way to evaluate how profitable the investment in the company is.

  $\text{Return on Shareholders' Equity = Net Income / Equity Share Capital x 100}$

Requirement 2:

The general rule indicated by Part 1