[ad_1]
Although some investors are already familiar with financial indicators (cap), this article is for people who want to know more about ROE and its importance. For the lesson to remain rooted in practice, we will use the ER to better understand Solutions 30 S.E. (EPA: ALS30).
Our data show Solutions 30 has a return on equity of 21% for the last year. One way to conceptualize this is that for every euro of equity it has, the company makes a profit of 0.21 euro.
Do you want to participate in a short research study? Help us shape the future of investment tools and get a chance to win a $ 250 gift card!
Discover our latest badyzes for Solutions 30
How to calculate the ROE?
the formula for ROE is:
Return on Equity = Net Earnings Equity Equity
Or for solutions 30:
21% = € 20m 92 92m € (based on the 12 months prior to December 2018)
Most readers would understand what a net profit is, but it helps to explain the concept of equity. This is the capital paid by shareholders, plus retained earnings. The simplest way to calculate equity is to subtract the total liabilities of the company from the total badets.
What does ROE mean?
Return on equity measures the profitability of a business relative to the profits it has made for the business (plus any capital injection). "Return" is the amount earned after tax in the last twelve months. A higher profit will lead to a higher ROE. So, all things being equal, investors should like a high ROE. Clearly, we can use ROE to compare different companies.
Does Solutions 30 have a good ROE?
By comparing a company's ROE to its industry average, we can get a quick measure of its quality. Importantly, this is far from a perfect measure because companies differ significantly within a single industrial clbadification. Solutions 30 has an above-average return on investment (11%) in the information technology sector.
This is a good sign. In my book, a high ROE almost always deserves a closer look. For example, I often check whether insiders have bought shares .
Why should you consider a debt when you examine the ROE?
Most businesses need money – from somewhere – to increase their profits. The money for investment can come from the profits of the previous fiscal year (retained earnings), the issuance of new shares or the loan. In the first and second cases, the ROE will reflect this use of cash for investment in the company. In the latter case, the use of debt will improve returns, but will not change equity. This will make the ROE better than if no debt was used.
Combination of Solutions 30's debt and return on equity of 21%
Although Solutions 30 actually uses debt, its debt-to-equity ratio of 0.90 remains low. The fact that he achieved a pretty good ROE with only a modest debt suggests that the business might be worthy of being listed on your watchlist. Prudent use of debt to improve returns is often very beneficial to shareholders. However, this could reduce the company's ability to take advantage of future opportunities.
But this is only a metric
Return on equity is useful for comparing the quality of different companies. A company that can achieve a high return on debt-free equity could be considered a high quality company. All things being equal, a higher ROE is preferable.
That said, while ROE is a useful indicator of the quality of the business, you will need to look at a variety of factors to determine the right price to buy a security. Earnings growth rates, relative to the expectations reflected in the price of the shares, are particularly important to take into account. You may want to take a look at this interactive graph rich in forecast data for the company.
Of course Solutions 30 may not be the best stock to buy. So, you might want to see this free consolidation of other companies with high ROE and low debt.
Our goal is to provide you with a long-term research badysis based on fundamental data. Note that our badysis may not take into account the latest price sensitive business announcements or qualitative information.
If you notice an error that needs to be corrected, please contact the publisher at [email protected]. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.
Calculation of discounted cash flow for each stock
Simply Wall St performs a detailed calculation of discounted cash flows every 6 hours for each market share. If you want to find the intrinsic value of any business, just search here. It's free.
Source link
