Hi Guys,

I am reading buffettology and i am trying to figure out what return on equity is?

I thought to calculate return on equity it was net profit divided by market capital (shares outstanding)

But for some reason in this book it looks like it is net profit divided by equity (assets - liabilities)

My questions are

1. Is ROE calculated on market cap or equity?

2. How come shareprice can be so much higher than equity per share?

3. Is equity per share = equity per share multiplied by shares outstanding = Book Value?

Im still pretty new to this all so just trying to understand how to calculate all these ratios.

Thanks in advance.

Milan

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