Profit Before Taxes/Net Worth

Profit Before Taxes/Net Worth

Dictionary Definition

This ratio measures the rate of return on the owners equity.  This is expressed as a percentage.  It can be used as a measurement of the efficiency of management.   

Equation

Why it Matters to You

A high return, normally associated with effective management, could indicate an undercapitalized firm. A low return, usually an indicator of inefficient management performance, could reflect a highly capitalized, conservatively operated business.