 |
Return on Equity (ROE)Return on equity or ROE can be calculated as,
ROE indicates return on investment that the investor is getting from company's profits. Simply put, ROE is stakeholder's return on investment. For example, stock ABC reported $200 million in profits with 700 million in shareholder's equity at the beginning of financial year, and 900 million shareholder's equity by the end of financial year. It's ROE will be 25 per cent.
Another example, stock XYZ has $800 million shareholder's equity in the beginning of financial year. It bought new equipment worth $300 million as it's investment and make $80 million in profits. At the same time, it invested the balance amount (another $500 million) in fixed deposit and earn another $20 million. By end of financial year, it gain $100 million in profits with total of $900 million in shareholder's equity. It's ROE will be 11.7 per cent.
In the following year, company XYZ face stiff competition from China that force them to stop business operation for a while. It's management decided to reinvest $900 million in fixed deposit and earned $35 million as interest. It's ROE will be 3.8 per cent.
If the return is just like you invest in fixed deposit yourself, what for invest in them? I don't like taking EXTRA risks with no EXTRA return. Highly Recommended FREE Sign UpWatch My Favourite Online Stock Trading TV Show from Trading ExpertsTrend Analysis for Profitable Trading in Any Market, Anytime & Anywhere Inside Market News for Effective Insider's Trading Try to Compete with Me in This Funtastic Stock Trading Game ;) You'll be successful stock investor if you sign them all... After all, it's FREE!!! Sign Up to Easy Stock Tips Newsletter Related ReadingGood Stock Pick: Unlimited Investment Profits FrameworkDiscover my simple but profitable stock screening criteria. It is proven to be a good stock pick strategy for all stock investors. How to Calculate Intrinsic Value for Stock Warren Buffet Way Efficiency Ratio, Liquidity Ratio, Leverage Ratio, Profitability Ratio,
Top Page of Return on Equity Back to Homepage
|
