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

One of the viewers pointed out not incorrectly that one definition of return on asset so this whole video's going to be on return on asset that one definition of return on asset, and if you look it up on some of the finance sites or even some finance textbooks, they'll tell you it's net income over total assets.

Now we can do another notion, and that's return on equity.

And I think you already get the sense that the lower the

The assets are generating this.

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

They obtained a yield of 8 percent on their investment.

But when you lower the Price to Earnings you are increasing the Earnings to Price.

So 5 million of liabilities.

EBlT in this case would be the operating profit plus this investment income.

It describes it right over here the change in equity, sometime the change in retained earnings, or just change in equity, that is going to be the 200 in net income that the company got over that time period.

She benefited from the sound investment.

So this is the operating profit. This is the money that just comes out of the asset itself.

They're generating the operating profit, and that's a very important thing to realize in the future when we talk about return on assets.

So it's 50 utilization and then, my return on asset is my operating income divided by my initial investment, right?

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.

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Why would someone ever keep their money in the bank at 2 or a Price to Earnings of 50, when they could have a Price to Earnings of 10 with Widgets Inc.?

This is a pretty profitable business, more profitable than most.

Anyway, I want to leave you there.

Minus 500,000.

In the last video I talk about how both Ben's Shoes and Jason' shoes are fundamentally the same business but they have different capital structures.

This new investment will multiply our profit.

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

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.

And my introduction to business was in these 100 little infuses of capital.

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

Interest rate

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.

But here you see it means very, very different things.

Stock investments do not always yield profit.

Money lenders are enjoying a profitable period.

We took it, repaid the first loan, then took the second, repaid and we go on repaying and increasing the amount.

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

So let me switch colors just to ease the monotony.

I'll just abbreviate that as Nl.

And so their operating profit, the amount of pre tax income, but you know, we're not considering financing either, so this is their operating profit or their EBlT.

Go ahead, eat.

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

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He derived great benefit from the book.

It recognizes that the market has its limitation, and so patient capital also works with smart subsidy to extend the benefits of a global economy to include all people.