>> You said last video that ROE equals ROA times financial

average In 2011, 9.68 times 2.28 is 22.1,

not 16.4, just another in a long list of your mistakes.

>> This one isn't actually a mistake, it's a simplification.

So, if you remember from last video, the return in return on equity is net income.

But the return in return on assets is de-levered net income,

which is net income + after-tax interest expense.

Because the returns are different, it won't multiply together.

To get it to multiply together cleanly, you have to add a third factor, or

a correction factor, which would be net income divided by after-tax net income.

If you multiply that third factor times ROA and financial leverage,

then you will get ROE.