This workout demonstrates the link between valuation, growth, and return on equity. We're looking here at two banks that have the same opening equity, and I immediately notice that they pay the same dividend. What we're asked to do is calculate the equity growth rate, the return on opening equity, and we're also asked to think about which one might have the highest valuation. Well, the first thing we're going to do is, calculate the closing shareholder's equity. And if you think about your base analysis, we're going to take the openingshareholder's equity, we're going to add net income, and we're going to subtract dividends to come to closing shareholder's equity. And of course, because the second bank has got higher net income, then it's got a great growth in shareholders' equity. Before we go any further, I recall that growth in shareholders' equity is a component of the Gordon Growth formula. I know that it's part of the denominator, and I know that if we have higher growth, then we're likely to have a higher value for equity. Let's calculate that equity growth rate for both of these banks. So, if I take the closing shareholders' equity divided by the opening shareholders' equity minus one, I've got a growth rate of 2% and 6% respectively. Now, let's think about the return on equity. Return on equity is, of course, net income divided by opening shareholders equity, and let's copy that out. So, you can see that for the second bank for Volga that it's got a higher equity growth rate because it's generating more net income. And similarly, it's generating a higher return on equity. That means that the second bank is likely to have a higher valuation.