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Return On Equity (ROE)
I’m sure when you invest your hard earned money in a company, you want
the management to take good care of it, right? ROE measures the company’s
ability to make use of its assets to generate profits.
ROE = Net profits – preference share dividends (if any) X 100%
Total shareholders’ funds
ROE is calculated by dividing the company’s after tax earnings by its total
shareholders’ funds. Where total shareholders’ funds includes paid-up share
capital, revenue reserves (retained profits), and capital reserves.
A company that has a strong management with effective use of its resource
should have a minimum of 10 on its return on equity, for a period of at least
five years. Warren Buffett, the second richest man in the world, requires his
stocks to have at least 15% ROE.
the management to take good care of it, right? ROE measures the company’s
ability to make use of its assets to generate profits.
ROE = Net profits – preference share dividends (if any) X 100%
Total shareholders’ funds
ROE is calculated by dividing the company’s after tax earnings by its total
shareholders’ funds. Where total shareholders’ funds includes paid-up share
capital, revenue reserves (retained profits), and capital reserves.
A company that has a strong management with effective use of its resource
should have a minimum of 10 on its return on equity, for a period of at least
five years. Warren Buffett, the second richest man in the world, requires his
stocks to have at least 15% ROE.
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