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
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2 comments:
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.
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:
http://xaivierchia.blogspot.com/p/intrinsic-value-investing-tutorial.html
Best wishes
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