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Recall that under the Scott formula, return on shareholders’ equity is the sum of return on operating capital and return on leverage; in other words, ROC + ROL = ROSE. Combining the constituent ratios for ROC and ROL, the Scott formula suggests that return on shareholders’ equity will equal:
This can be illustrated in the case of BDCC. The Scott formula ratios for the 2019, 2020 and 2021 years are calculated as follows:
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