When calculating ROE, do you use beginning equity or do you use ending equity value…, or do you have to average both?
We need to use average because; ROE = NI/Equity If you notice, Net Income (NI) is over a period of time (from Income statement) where as Equity amt is taken from balance sheet is at a point in time. As such, we need to take average for Equity ie beginning+ending divided by 2, thus gives average. Hope this helps 
cool. thx, dude. There are instances where CFAI text used BGN Equity though.
i have the same confusion. definitely gotta straighten it out before exam day…
i believe for the residual income they use only beginning equity bc its tied to the individual period where the equity charge is taken. my rule of thumb, if not RI and given 2 years of equity, use average, otherwise you cant
In general, when you are combining an income statement item (NI) with a balance sheet item (equity), you should average the balance sheet item.
Per the residual income methodology, use the begining value. It makes intuitive sense as well. Your initial investment is your begining Equity (as an investor). Over that period of time, your return depends on how well the company has done, measured by NI. so your return (ROE) = NI at the end of the period / Equity at the begining of the period.