What Is Return On Equity? | Stock Market For Beginners | Investing In Stocks For Beginners

Описание: What Is Return On Equity? | Stock Market For Beginners | Investing In Stocks For Beginners

In today’s video, I’m going to be talking about return on equity. Let's get straight into it.

Investing in companies that generate profits more efficiently than their rivals can be very profitable for portfolios. Return on equity can help investors distinguish between companies that are profit creators and those that are profit burners.

Return on equity is calculated by dividing a company's net income by its shareholders' equity, thereby arriving at a measure of how efficient a company is in generating profits.
By measuring the earnings a company can generate from assets, Return on equity offers a gauge of profit-generating efficiency. Return on equity helps investors determine whether a company is a lean, profit machine or an inefficient operator.

Firms that do a good job of milking profit from their operations typically have a competitive advantage—a feature that normally translates into superior returns for investors. The relationship between the company's profit and the investor's return makes Return on equity a particularly valuable metric to examine.

Many investors specify 15% as their minimum acceptable ROE when evaluating investment opportunities.

Legendary investor Joel Greenblatt has famously said that ““Businesses that earn a high return on capital are better than businesses that earn a low return on capital.”

Return on equity shouldn’t be used in isolation as it doesn’t tell you the full story of a company. It should be used alongside other tools & ratios during fundamental analysis.

Thank you for watching!

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