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Net Worth

While there is no doubt that the preference shareholders are the owners of the firm, the real owners are the ordinary shareholders who bear all the risk, participate in the management and are entitled to all the profits remaining after all possible claims of preference shareholders are met in full.

Thus it can be said that,

Average Ordinary Shareholders Equity = Net Worth Of Company

Return on Net Worth = Net Profit After Tax - Preference Dividend

Average Equity of the Ordinary Shareholders Equity or Net Worth

It is probably the single most important ratio to judge whether the firm has earned satisfactory return for its equity shareholders or not. Its adequacy is judge by

8 Comparing with the past records of the same firm

8 Inter-firm comparison

8 Comparison with the overall industry average

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Q: What is the financial definition of the term net of when it is used in such as net of taxes net of special charges net of fees?
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