Among them, average net assets = (net assets at the beginning of the year+net assets at the end of the year) /2, and the denominator of this formula is "average net assets", which can also be used as "net assets at the end of the year".
For example, the return on equity of a public company can be calculated according to the following formula: return on equity = net profit/year-end shareholders' equity × 100%, ROE (DuPont formula) = net profit/net assets = sales profit rate × asset turnover rate × equity multiplier (financial leverage).
Sales profit rate = total profit/sales revenue, asset turnover rate = sales revenue/total assets, equity multiplier = total assets/net assets, and return on net assets is the percentage of net profit and average shareholders' equity, which is the percentage rate obtained by dividing the company's after-tax profit by net assets. This indicator reflects the income level of shareholders' equity.
Influencing factors of return on net assets
1, return on total assets
Net assets are a part of all assets of an enterprise, so the return on net assets is bound to be influenced by the return on total assets of the enterprise. The higher the return on total assets is, the higher the ROE will be under the condition that the debt interest rate and capital composition remain unchanged.
2. Debt interest rate
The reason why the debt interest rate affects the return on net assets is that under a certain capital structure, when the change of debt interest rate makes the total return on assets higher than the debt interest rate, it will have a favorable impact on the return on net assets; On the contrary, when the return on total assets is lower than the debt interest rate, it will adversely affect the return on net assets.