Profit Before Taxes/Net Worth

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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.   


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.


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