While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. To keep the lesson grounded in practicality, we'll use ROE to better understand Gray Television, Inc. (NYSE:GTN).
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Gray Television
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Gray Television is:
7.0% = US$173m ÷ US$2.5b (Based on the trailing twelve months to June 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.07 in profit.
Does Gray Television Have A Good ROE?
By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. As is clear from the image below, Gray Television has a lower ROE than the average (14%) in the Media industry.
NYSE:GTN Return on Equity September 22nd 2022
Unfortunately, that's sub-optimal. Although, we think that a lower ROE could still mean that a company has the opportunity to better its returns with the use of leverage, provided its existing debt levels are low. When a company has low ROE but high debt levels, we would be cautious as the risk involved is too high. Our risks dashboard should have the 4 risks we have identified for Gray Television.
How Does Debt Impact Return On Equity?
Most companies need money -- from somewhere -- to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.
Gray Television's Debt And Its 7.0% ROE
It's worth noting the high use of debt by Gray Television, leading to its debt to equity ratio of 2.69. Its ROE is quite low, even with the use of significant debt; that's not a good result, in our opinion. Debt does bring extra risk, so it's only really worthwhile when a company generates some decent returns from it.
Conclusion
Return on equity is useful for comparing the quality of different businesses. In our books, the highest quality companies have high return on equity, despite low debt. If two companies have around the same level of debt to equity, and one has a higher ROE, I'd generally prefer the one with higher ROE.
But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to check this FREE visualization of analyst forecasts for the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
雖然一些投資者已經非常精通財務指標(帽子提示),但本文面向的是那些想要了解股本回報率(ROE)及其重要性的人。為了使課程立足於實踐,我們將使用淨資產收益率來更好地理解格雷電視公司(紐約證券交易所代碼:GTN)。
股本回報率(ROE)是對一家公司增值和管理投資者資金的效率的測試。簡而言之,淨資產收益率顯示了每一美元相對於其股東投資產生的利潤。
查看我們對Gray TV的最新分析
你如何計算股本回報率?
這個淨資產收益率公式是:
股本回報率=(持續經營的)淨利潤?股東權益
因此,根據上述公式,灰色電視的淨資產收益率為:
7.0%=1.73億美元×25億美元(基於截至2022年6月的12個月)。
“回報”就是年度利潤。這意味着,股東權益每增加1美元,公司就會產生0.07美元的利潤。
灰色電視的淨資產收益率好嗎?
通過將一家公司的淨資產收益率(ROE)與其行業平均水平進行比較,我們可以快速衡量它有多好。這種方法的侷限性是,一些公司與其他公司有很大的不同,甚至在相同的行業分類中也是如此。如下圖所示,灰色電視的淨資產收益率(ROE)低於媒體行業的平均水平(14%)。
紐約證券交易所:GTN股本回報率2022年9月22日
不幸的是,這並不是最優的。不過,我們認為,較低的淨資產收益率仍可能意味着,如果一家公司現有的債務水平較低,那麼它就有機會通過使用槓桿來提高回報。當一家公司的淨資產收益率低但債務水平高時,我們會謹慎行事,因為涉及的風險太高。我們的風險控制面板應該包含我們為Gray TV確定的4個風險。
債務對股本回報率有何影響?
大多數公司都需要資金--從某個地方--來增加利潤。這些現金可以來自留存收益、發行新股(股權)或債務。在前兩種情況下,淨資產收益率將抓住這種資本增長的用途。在後一種情況下,用於增長的債務將提高回報,但不會影響總股本。因此,債務的使用可以提高淨資產收益率,儘管打個比方説,在暴風雨天氣的情況下會有額外的風險。
灰色電視的債務及其7.0%的淨資產收益率
值得注意的是,灰色電視高度利用債務,導致其債務權益比達到2.69。它的淨資產收益率相當低,即使使用了大量債務;在我們看來,這不是一個好結果。債務確實會帶來額外的風險,所以只有當一家公司從債務中獲得一些可觀的回報時,它才是真正值得的。
結論
股本回報率在比較不同企業的質量時很有用。在我們的賬目中,最高質量的公司擁有高股本回報率,儘管債務水平較低。如果兩家公司的債務權益比大致相同,而其中一家公司的淨資產收益率更高,我通常會更喜歡淨資產收益率更高的那家公司。
但淨資產收益率只是一個更大的謎題的一部分,因為高質量企業的市盈率往往很高。相對於當前價格反映的利潤增長預期,也必須考慮利潤可能增長的速度。因此,你可能想查看分析師對該公司預測的免費可視化。
當然了,如果你把目光投向別處,你可能會發現這是一筆很棒的投資。所以讓我們來看看這個免費有趣的公司名單。
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本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。