ROE or return on Equity is a ratio analysis to determine whether the performance of a company that issues stocks has a good level of profit by comparing net profit with total equity, so it is no different from Earning Per Share divided by Price to Book Value.
Investors use ROE as a parameter to measure the profits obtained from each deposited capital, so that they can know the capital's ability to make profits after interest and tax, which is better known as Earnings After Interest and Tax (EAIT). So basically ROE reflects the company's ability to manage equity and performance of a company.
The greater the ROI, the better the performance of a company, but a high ROE also carries high risk, so investors need to pay attention to debt. Ideally the minimum ROE is 10%.
Many senior investors suggest that it is better to use EBIT rather than EAIT (earnings after interest and tax), because the amount of EAIT is often influenced by interest and tax which change every year, so net profit often provides biased figures when analyzing company performance, which is why senior investors also suggests the need to calculate ROE from gross profit/EBIT. So investors can then consider stocks with ROE that is close to the long-term average return of around 15% a year.
Investors use ROE as a parameter to measure the profits obtained from each deposited capital, so that they can know the capital's ability to make profits after interest and tax, which is better known as Earnings After Interest and Tax (EAIT). So basically ROE reflects the company's ability to manage equity and performance of a company.
The greater the ROI, the better the performance of a company, but a high ROE also carries high risk, so investors need to pay attention to debt. Ideally the minimum ROE is 10%.
Many senior investors suggest that it is better to use EBIT rather than EAIT (earnings after interest and tax), because the amount of EAIT is often influenced by interest and tax which change every year, so net profit often provides biased figures when analyzing company performance, which is why senior investors also suggests the need to calculate ROE from gross profit/EBIT. So investors can then consider stocks with ROE that is close to the long-term average return of around 15% a year.
