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.
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.
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