The
calculation for this KPI is very similar to Return on Funds Employed
excepting that it uses the value of Net Worth as opposed to the total
value of Funds Employed.
Example:
A) Net Profit Before Interest = R508,327 B) Net Worth = R847,213 C) Return On Own Funds = 59.8% (A ÷ B X 100)
Discussion:
This
figure can in some cases be very misleading as it is based on the value
of the owner's funds, therefore it is the trend of this KPI that is of most
value to you.
The
danger of too much reliance upon this KPI is that if your value of owner's funds decreases, this percentage figure could be showing an increasing
trend.
You
should use this information in accordance with your Equity percentage
together with your Return on Funds Employed percentage to arrive at a
meaningful conclusion.