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Formula – Return on Equity
In order to find the return on equity of an asset, the amount of equity has to be tabulated first.
V – M = E
V – Current market value
M – Mortgage balance owing
E – Equity
Equity on a property refers to the difference of the market value of a property and the amount outstanding of a mortgage debt.
With equity calculated using the formula above, we can now use it to calculate return on equity using the below equation.
(P – E)/E = R
P – Proceeds from sale
E – Equity
R = Return on equity
Unlike return on investment which works out the returns based on investment capital, return on equity works out the returns based on equity.
Expressed as a percentage, this is used as a measurement of how profitable an investment is.