|
What does a company’s return on equity tell me?
Return on equity is a measure of a company’s profitability based on net income as a percentage of common stock equity.Known as ROE, it is especially useful when comparing several companies within one industry or when studying a company’s profitability trends. Many investors look carefully at ROE.You should favor a company that has shown solid growth in ROE, and be wary of investing if the ROE is falling.To calculate a simple ROE, divide net earnings for the last 12 months by stockholders equity. Be sure it is adjusted for stock splits. In most industries, an ROE below 10% is considered poor.Return to Questions
|
