One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. By way of learning-by-doing, we'll look at ROE to gain a better understanding of Swang Chai Chuan Limited (HKG:2321).
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
View our latest analysis for Swang Chai Chuan
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Swang Chai Chuan is:
20% = RM26m ÷ RM126m (Based on the trailing twelve months to June 2022).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.20 in profit.
Does Swang Chai Chuan 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, Swang Chai Chuan has a better ROE than the average (8.8%) in the Consumer Retailing industry.
SEHK:2321 Return on Equity November 22nd 2022
That's what we like to see. Bear in mind, a high ROE doesn't always mean superior financial performance. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk.
How Does Debt Impact Return On Equity?
Virtually all companies need money to invest in the business, to grow profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. 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. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same.
Swang Chai Chuan's Debt And Its 20% ROE
While Swang Chai Chuan does have some debt, with a debt to equity ratio of just 0.38, we wouldn't say debt is excessive. The combination of modest debt and a very respectable ROE suggests this is a business worth watching. Careful use of debt to boost returns is often very good for shareholders. However, it could reduce the company's ability to take advantage of future opportunities.
Summary
Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. If two companies have the same ROE, then I would generally prefer the one with less debt.
Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. You can see how the company has grow in the past by looking at this FREE detailed graph of past earnings, revenue and cash flow.
But note: Swang Chai Chuan may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.
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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.
我们能做的最好的投资之一就是我们自己的知识和技能。考虑到这一点,本文将探讨如何使用股本回报率(ROE)来更好地了解企业。通过边干边学的方式,我们将研究投资回报率,以更好地了解Swang Chai Chuan Limited(HKG: 2321)。
股本回报率或投资回报率是股东需要考虑的重要因素,因为它可以告诉他们资本再投资的有效性。简而言之,它衡量公司相对于股东权益的盈利能力。
查看我们对 Swang Chai Chuan 的最新分析
投资回报率是如何计算的?
这个 股本回报率公式 是:
股本回报率 = 净利润(来自持续经营)≥ 股东权益
因此,根据上述公式,Swang Chai Chuan 的投资回报率为:
20% = 2600万令吉 ≥ 1.26亿令吉(基于截至2022年6月的过去十二个月)。
“回报” 是过去十二个月的利润。另一种看法是,每持有价值1港元的股权,该公司就能获得0.20港元的利润。
Swang Chai Chuan 的投资回报率好吗?
通过将公司的投资回报率与行业平均水平进行比较,我们可以快速衡量公司的投资回报率。这种方法的局限性在于,有些公司与其他公司有很大不同,即使在相同的行业分类中也是如此。如下图所示,Swang Chai Chuan的投资回报率高于消费零售行业的平均水平(8.8%)。
SEHK: 2321 2022 年 11 月 22 日股本回报率
这就是我们喜欢看到的。请记住,高投资回报率并不总是意味着卓越的财务业绩。尤其是当一家公司使用高额债务为其债务融资时,这可能会提高其投资回报率,但高杠杆率使公司处于危险之中。
债务如何影响股本回报率?
几乎所有公司都需要资金来投资业务,以增加利润。投资现金可以来自上一年的利润(留存收益)、发行新股或借款。在前两个案例中,投资回报率将利用这种资本来增长。在后一种情况下,用于增长的债务将提高回报,但不会影响总资产。通过这种方式,尽管企业的核心经济保持不变,但债务的使用将提高投资回报率。
Swang Chai Chuan 的债务及其20%的投资回报率
尽管Swang Chai Chuan确实有一些债务,债务与权益比率仅为0.38,但我们不会说债务过多。适度的债务和非常可观的投资回报率相结合,表明这是一项值得关注的业务。谨慎使用债务来提高回报通常对股东非常有利。但是,这可能会降低公司利用未来机会的能力。
摘要
股本回报率是我们可以比较不同公司的业务质量的一种方式。能够在不负债过多的情况下获得高股本回报的公司通常质量很好。如果两家公司的投资回报率相同,那么我通常更喜欢负债较少的公司。
话虽如此,尽管投资回报率是衡量业务质量的有用指标,但你必须考虑一系列因素才能确定购买股票的正确价格。与股票价格所反映的预期相比,利润增长率尤其值得考虑。你可以通过这个免费版本来了解公司过去是如何发展的 详细图表 过去的收益、收入和现金流。
但请注意: Swang Chai Chuan 可能不是最值得买入的股票。所以来看看这个 免费的 投资回报率高、负债低的有趣公司名单。
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Simply Wall St 的这篇文章本质上是一般性的。 我们仅使用不偏不倚的方法根据历史数据和分析师预测提供评论,我们的文章并非旨在提供财务建议。 它不构成买入或卖出任何股票的建议,也没有考虑您的目标或财务状况。我们的目标是为您提供由基本面数据驱动的长期重点分析。请注意,我们的分析可能未将最新的价格敏感型公司公告或定性材料考虑在内。简而言之,华尔街对上述任何股票都没有头寸。