What figures do I need to work out Return on ordinary shareholders funds.

Question

I am revising for a finance exam and i know that the formula is:

Net profit after tax and preference dividend/ordinary shares and reserves

However, the answer in my revision guide is showing a 'General reserve' figure, and I dont understand why this is coming up, as the formula doesnt ask for this?

Also, I have a practice exam paper and i cant find 'Reserves' on the balance sheet. How can I work out this ratio without 'reserves'?

Answer 1

I agree with Sandy.  Reserves are should be ignored for your question.  They are not costs to the company at this time and may never be.  

Answer 2

General reserve in some texts is the same as retained earnings.