India Incís profitability for shareholders waning since 2008-09
In the financial year 2011-12, RoEs of seven of the top 10 groups have fallen by 170-1,187 basis points over the previous financial year. The only groups that have improved their returns over the previous financial year are those of the Munjals, Anil Ambani and Birla AV.
RoE measures a corporationís profitability by revealing how much profit a company generates with the money its shareholders have invested. It is measured as net income as a percentage of net worth or shareholder equity. Adjusted net profit (profit before extraordinary items) was considered as net income after deducting the preference dividend, if any.
At a time when corporate profits are growing at a slow pace and raising additional funds becomes harder, companies retain a higher portion of net income to strengthen the balance sheet. As a result, the shareholder equity of majority groups in FY12 grew faster than their bottomlines, bringing down their RoE. Shareholder equity comprises equity paid-up and reserves. In FY11 and FY12, five and four corporate groups saw a decline in their RoEs, respectively. Mahindra and OP Jindal were the only two groups that have witnessed a consistent fall in their RoEs over the last three
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