Return Flashcards
What is the formula for
Partners’ earnings (individual)
Partner’s earnings
Average partner’s equity x 100
= x%
How do u calculate partners earning
Final distribution + primary distribution
How do u calculate average partners equity
0,5(equity at BOY + equity at EOY)
Equity - capital acc + current acc
Why’s does this ratio determine
It’s determines whether the partner made the right decision to invest in their business
This indicator measures how profitable the investment for the partners in the business is.
What must this ration be higher than
The return must be higher than the interest rate on fixed deposits.
What must this ratio be compared with
• Compare to interest rates offered by banks, like interest rates on fixed deposits, returns on shares and unit trusts.
• Compare with previous year
What’s I recommended
RECOMMEND
If the partner is not satisfied, he may wish to re-negotiate the partners’ agreement or decide to withdraw from the partnership
If the return is much lower than interest rates on other investments year after year, it is advisable to rather invest the money elsewhere.
What is the formula i for Return on partners’ equity (all partners )
Net profit
Average partners’ equity x 100
What should this be compared to
COMPARE
• Compare to interest rates offered by banks, like interest rates on fixed deposits, returns on shares and unit trusts.
• Compare with previous year
If the rate is higher that FD
What does it mean.
COMMENT
If the return is higher than the interest rates on other investments, the partners can be satisfied.
What should be recommended
•Partners should investigate if the business is well managed
•A decisions should be made: are there future prospects for growth in the business?
