Return on Equity (#ROE) and Return on Capital Employed (#ROCE) are two important Financial Ratios used in #FundamentalAnalysis of Stocks.
#StockMarket #Investing
Thread 🧵explaining #ROE & #ROCE and its use in #FundamentalAnalysis
(Must read for #FA learners)
🙏Like & RT to spread learning with all 🙏
Views Welcome 👉 @dmuthuk @Vivek_Investor @datta_arvind @caniravkaria @FI_InvestIndia @AdityaD_Shah
#FundamentalAnalysis #StockMarket
Return on Equity (#ROE) and Return on Capital Employed (#ROCE) are two important Financial Ratios used in #FundamentalAnalysis of Stocks.
#StockMarket #Investing
Return on Equity (ROE) is the ratio of Net Income (Net Profit) of a company and it’s Total Equity (Shareholder's Equity).
Here - Shareholders Equity = Share Capital + Reserves & Surplus.
#StockMarket #Investing #FundamentalAnalysis
#ROE is a measure of how much net profit a company is making for every rupee invested by its shareholders in the company.
It can be said that higher the ROE, better it is for the equity shareholders. It tells shareholders about how effectively their money is being used.
However, you should not trust high ROE blindly. Biggest drawbacks or weaknesses of ROE is that it completely ignores debt.
Hence for companies having high levels of debt, ROE will give a higher but misleading value & therefore we need to look at #ROCE along with #ROE.
Return on Capital Employed is ratio of company’s Operating Profit i.e., Profit before Interest & Taxes (EBIT) and its Total Capital Employed.
Here - Total Capital Employed = Shareholder’s Equity + Short Term Debt + Long Term Debt
#StockMarket #Investing #FundamentalAnalysis
Since #ROCE measures how much profit a company generates with its total capital employed, it overcomes a major weakness of ROE.
It can be said that higher the ROCE, the better it is. It means that business is profitable & company is utilizing its capital more economically.
ROCE is a long term profitability ratio because it shows how effectively company’s assets are performing while taking into consideration long term financing.
This is why ROCE is a more useful ratio than ROE to evaluate the longevity of a company.
#StockMarket #Investing
@WarrenBuffett prefers to invest in companies which have both #ROE and #ROCE above 20%.
✅He also prefers that value of ROE and ROCE should be close to each other.
❎He avoids investing in companies where there is a large difference between ROE and ROCE.
More from Techno Funda Investing
More from Accounting
MCap is a function of market sentiments. Balance sheet, cash flows, R&D execution, talent acquisition, regulatory compliance, M&As and so on....are a function of management/governance. Never mix the business with the stock. Stock is not the business. Business is not the stock :)
It's simple, if ""FY23 PAT of this API to CDMO = FY21 PAT of largest pure-play CDMO/API"" then the FY23 Mcap of this API/CDMO= FY21 Mcap of largest pure-play CDMO/API, am I correct Sajal saab??
— richman (@greatrichman3) June 14, 2021
You May Also Like
So the cryptocurrency industry has basically two products, one which is relatively benign and doesn't have product market fit, and one which is malignant and does. The industry has a weird superposition of understanding this fact and (strategically?) not understanding it.
The benign product is sovereign programmable money, which is historically a niche interest of folks with a relatively clustered set of beliefs about the state, the literary merit of Snow Crash, and the utility of gold to the modern economy.
This product has narrow appeal and, accordingly, is worth about as much as everything else on a 486 sitting in someone's basement is worth.
The other product is investment scams, which have approximately the best product market fit of anything produced by humans. In no age, in no country, in no city, at no level of sophistication do people consistently say "Actually I would prefer not to get money for nothing."
This product needs the exchanges like they need oxygen, because the value of it is directly tied to having payment rails to move real currency into the ecosystem and some jurisdictional and regulatory legerdemain to stay one step ahead of the banhammer.
If everyone was holding bitcoin on the old x86 in their parents basement, we would be finding a price bottom. The problem is the risk is all pooled at a few brokerages and a network of rotten exchanges with counter party risk that makes AIG circa 2008 look like a good credit.
— Greg Wester (@gwestr) November 25, 2018
The benign product is sovereign programmable money, which is historically a niche interest of folks with a relatively clustered set of beliefs about the state, the literary merit of Snow Crash, and the utility of gold to the modern economy.
This product has narrow appeal and, accordingly, is worth about as much as everything else on a 486 sitting in someone's basement is worth.
The other product is investment scams, which have approximately the best product market fit of anything produced by humans. In no age, in no country, in no city, at no level of sophistication do people consistently say "Actually I would prefer not to get money for nothing."
This product needs the exchanges like they need oxygen, because the value of it is directly tied to having payment rails to move real currency into the ecosystem and some jurisdictional and regulatory legerdemain to stay one step ahead of the banhammer.
The entire discussion around Facebook’s disclosures of what happened in 2016 is very frustrating. No exec stopped any investigations, but there were a lot of heated discussions about what to publish and when.
In the spring and summer of 2016, as reported by the Times, activity we traced to GRU was reported to the FBI. This was the standard model of interaction companies used for nation-state attacks against likely US targeted.
In the Spring of 2017, after a deep dive into the Fake News phenomena, the security team wanted to publish an update that covered what we had learned. At this point, we didn’t have any advertising content or the big IRA cluster, but we did know about the GRU model.
This report when through dozens of edits as different equities were represented. I did not have any meetings with Sheryl on the paper, but I can’t speak to whether she was in the loop with my higher-ups.
In the end, the difficult question of attribution was settled by us pointing to the DNI report instead of saying Russia or GRU directly. In my pre-briefs with members of Congress, I made it clear that we believed this action was GRU.
The story doesn\u2019t say you were told not to... it says you did so without approval and they tried to obfuscate what you found. Is that true?
— Sarah Frier (@sarahfrier) November 15, 2018
In the spring and summer of 2016, as reported by the Times, activity we traced to GRU was reported to the FBI. This was the standard model of interaction companies used for nation-state attacks against likely US targeted.
In the Spring of 2017, after a deep dive into the Fake News phenomena, the security team wanted to publish an update that covered what we had learned. At this point, we didn’t have any advertising content or the big IRA cluster, but we did know about the GRU model.
This report when through dozens of edits as different equities were represented. I did not have any meetings with Sheryl on the paper, but I can’t speak to whether she was in the loop with my higher-ups.
In the end, the difficult question of attribution was settled by us pointing to the DNI report instead of saying Russia or GRU directly. In my pre-briefs with members of Congress, I made it clear that we believed this action was GRU.