05 September 2010

Fundamental Analysis: Return Of Equity, ROE, in a Stock Market Investment

Basically, all investors wish to invest to a company which is using their investors' fund wisely. In order words, most investors concern about how much the company generate profits with one dollar from investor.

Therefore, Return Of Equity, ROE, equals to the net profit divided by Shareholder's Equity.

For example, ROE of 10% or 0.10 means the company has the ability to generate $1.00 with every $10.00 from investor. Is it a good deal?? I don't know. But comparison other company in the same section with give you a better understand about ROE.

Some business may has relatively high ROE but other might not as mention in ROA before. To sum up, both ROE and ROA are used to evaluate the profitability of a company. Feel free to give me a comment about this topic. It will be a great support to Xaivier Blog.

Written by: Xaivier Chia



Oz said...

Hi Xavier,

Thanks for your valuable posting. It's very informative & easy to understand.

But can you advice how do u valuing a company/ stock price base on the fundamental value.

Xaivier Chia said...

Hi Oz,

You are welcome. I will try my best to compile the ways I use to estimate the intrinsic value of a company in the coming posts.

In the meantime, you may visit my previous sharings about stock valuation from the following link:

Best wishes

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