So what they do is they just take your earnings number and you divide by the number of shares.

In return on equity, the numerator is the net income that we got, so it's 350,000.

But in this case, you literally just take the price of the stock and you divide it by the earnings per share.

So EBlT, I kind of view that it goes backwards.

These are the only people who really have, arguably the sophistication and the time and the monetary incentive to really look and scrutinize what management is doing.

They buy more of your service and they tell more of their friends, which leads to more profit.

Company A made 1 per share. 1 of EPS.

And when people talk about earnings of a company, this is what they're talking about.

So you've probably heard not only the term earnings, you've probably also heard the term earnings per share.

We are assuming a very simple world, were the is no taxes, we have no debt, we have no intrest or things

And you'll hear these numbers, gross and operating profit and net profit and pretax profit, and it's very hard to understand that these are actually very, very different things, because they all have the word profit, and what does gross and operating and all that mean?

And at least it'll give you a sense of how revenues, gross profit, operating profit, pre tax income and net income really are different.

So this is trailing 12 months earnings.

This is really important to pay attention to, because so many people say, oh, a company made this much.

And let's say, assume if I inherited this million dollars, I didn't finance it.

And so we took this number as the numerator and we divided by the number of assets.

And so you can already imagine that both EBlT and the way I defined it initially, operating profit divided by assets.

But anyway, here I want to figure out what is my return on asset?

It's good for everybody.

But again, fun is not enough.

I'll just abbreviate that as Nl.

I've rationed it.

This is what the owners of the company get before they pay the government.

(Laughter) But I know it's the bottom line, or one's perception of it, that motivates people in the end.

So then you're having, you have your net income, your net income during the period.

We know how much it takes to build our product.

Then the companies or those factories or whatever you want to think of them,

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So that's what I'm paying for, arguably.

And then if you subtract your costs from your revenue, or if you just add these two numbers, because this one is negative, you have your gross profit.

In this example that I did in the previous video, it was the pre tax return on asset.

Now we have to introduce some extra constraints so that this truth assignment has to be satisfied.

Utilities are still rewarded when their customers waste energy.

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