The owners of the firm demand growth in equity over a period of time. Growth arises from investment by the investor and additions to equity from running the business. There are two major areas of owner’s equity— creation of value and distribution of value: There are different ratios related to owner’s equity by which we can analyze the position of the equity holders about their value creation and distribution of value.
Ratios related to owner’s equity are given hereunder—
A. Payout and retention ratio: 1. Dividend payout ratio Total payout ratio 3. Dividends-to-book value ratio 4. Total payout-to-took value 5. Retention ratio
B. Share holders Profitability— 1. Return on common equity (ROCE)
C. Growth ratios— 1. Net investment rate. 2. Growth rate of common share holders equity.