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.
我們可以做出的最好的投資之一是我們自己的知識和技能。考慮到這一點,本文將通過我們如何使用公平回報率(ROE)來更好地理解業務。通過學習的方式,我們將看看 ROE,以更好地了解上海灣仔川有限公司(HKG:2321)。
股東回報率或 ROE 是股東需要考慮的重要因素,因為它可以告訴他們其資本再投資的有效性。簡單來說,它衡量公司相對於股東權益的盈利能力。
查看我們的揮柴川的最新分析
如何計算 ROE?
該 公式的權益回報 是:
權益回報率 = 淨利潤(來自持續經營業務)÷ 股東權益
因此,根據以上公式,揮仔川的 ROE 是:
20% = 6 億令吉 ÷ 6 億令吉 (以 2022 年 6 月為止的最後十二個月計算)。
「回報」是過去十二個月的利潤。另一個考慮方法是,公司每股價值港幣 1 元的股本便可賺取港幣 0.20 元的利潤。
揮柴川有好魚卵嗎?
通過將公司的 ROE 與其行業平均值進行比較,我們可以快速測量其效果。這種方法的限制在於,有些公司與其他公司完全不同,即使在相同的行業分類中也是如此。從下圖可以清楚地看出,上海川的投資回報率優於消費品零售行業的平均水平(8.8%)。
聯交所代碼:2321 二零二年十一月二十二日股本報表
這就是我們喜歡看到的。請記住,較高的 ROE 並不總是意味著卓越的財務績效。特別是當一家公司使用高水平的債務來融資其債務時,這可能會增加其 ROE,但高槓桿使公司面臨風險。
債務影響如何對股本的回報?
幾乎所有的公司都需要錢投資於業務,增加利潤。投資現金可以來自上一年的利潤(保留盈利),發行新股或借貸。在前兩種情況下,ROE 將捕獲這種資本的使用以增長。在後一種情況下,用於增長的債務將提高回報,但不會影響總權益。即使企業的核心經濟學保持不變,以這種方式使用債務將提高 ROE。
揮柴泉債務及其 20% 魚卵
雖然沙柴川確實有一些債務,債務與權益比率僅為 0.38,但我們不會說債務過多。適度的債務和非常可觀的 ROE 的組合表明這是一個值得關注的業務。小心利用債務來提高回報對股東來說通常是非常有益的。但是,它可能會降低公司利用未來機會的能力。
摘要
股權回報率是我們可以比較不同公司業務質素的一種方法。在沒有太多債務的情況下可以獲得高股權回報的公司,通常質量很好。如果兩家公司擁有相同的 ROE,那麼我通常更喜歡債務較少的公司。
話雖如此,儘管 ROE 是業務質量的有用指標,但您必須查看各種因素來確定購買股票的合適價格。利潤增長率與股票價格中反映的預期相比,尤其值得考慮。您可以通過查看此免費查看公司過去的增長 詳細的圖表 過往收益、收入和現金流。
但請注意: 揮柴川可能不是最好的股票買。因此,請先看看這個 自由 有趣的公司列表具有高 ROE 和低債務。
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這篇文章由簡單牆聖是一般性質. 我們僅使用公正的方法,根據歷史數據和分析師預測提供評論,我們的文章並不打算作為財務建議。 它並不構成購買或出售任何股票的建議,也不會考慮您的目標或您的財務狀況。我們的目標是為您帶來由基本數據驅動的長期集中分析。請注意,我們的分析可能不會考慮最新的價格敏感公司公告或定性材料。簡易華街在提及的任何股票中都沒有倉位。