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. We'll use ROE to examine Jilin Electric Power Co.,Ltd. (SZSE:000875), by way of a worked example.
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.
Check out our latest analysis for Jilin Electric PowerLtd
How Do You Calculate Return On Equity?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Jilin Electric PowerLtd is:
5.3% = CN¥785m ÷ CN¥15b (Based on the trailing twelve months to March 2022).
The 'return' refers to a company's earnings over the last year. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.05 in profit.
Does Jilin Electric PowerLtd 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. You can see in the graphic below that Jilin Electric PowerLtd has an ROE that is fairly close to the average for the Renewable Energy industry (6.1%).
SZSE:000875 Return on Equity July 8th 2022
That isn't amazing, but it is respectable. Even if the ROE is respectable when compared to the industry, its worth checking if the firm's ROE is being aided by high debt levels. If a company takes on too much debt, it is at higher risk of defaulting on interest payments. You can see the 2 risks we have identified for Jilin Electric PowerLtd by visiting our risks dashboard for free on our platform here.
The Importance Of Debt To 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. That will make the ROE look better than if no debt was used.
Jilin Electric PowerLtd's Debt And Its 5.3% ROE
We think Jilin Electric PowerLtd uses a significant amount of debt to maximize its returns, as it has a significantly higher debt to equity ratio of 3.04. The combination of a rather low ROE and high debt to equity is a negative, in our book.
Summary
Return on equity is useful for comparing the quality of different businesses. A company that can achieve a high return on equity without debt could be considered a high quality business. If two companies have the same ROE, then I would generally prefer the one with less debt.
But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So you might want to take a peek at this data-rich interactive graph of forecasts for the company.
But note: Jilin Electric PowerLtd 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.
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.
虽然一些投资者已经非常精通财务指标(帽子提示)，但本文面向的是那些想要了解股本回报率(ROE)及其重要性的人。我们将使用净资产收益率来检验吉林电力股份有限公司(SZSE：000875)，作为一个实例。
股本回报率(ROE)是对一家公司增值和管理投资者资金的效率的测试。简而言之，净资产收益率显示了每一美元相对于其股东投资产生的利润。
查看我们对吉林电力有限公司的最新分析
你如何计算股本回报率？
可使用以下公式计算净资产收益率：
股本回报率=(持续经营的)净利润？股东权益
因此，根据上述公式，吉林电力股份有限公司的净资产收益率为：
5.3%=7.85亿元×150亿元(以截至2022年3月的12个月为基础)。
“回报”指的是一家公司过去一年的收益。这意味着，股东权益每增加1元，公司就会产生0.05元的利润。
吉林电力股份有限公司的净资产收益率好吗？
通过将一家公司的净资产收益率(ROE)与其行业平均水平进行比较，我们可以快速衡量它有多好。这种方法的局限性是，一些公司与其他公司有很大的不同，甚至在相同的行业分类中也是如此。你可以在下图中看到，吉林电力股份有限公司的净资产收益率相当接近可再生能源行业的平均水平(6.1%)。
深圳证券交易所：000875股本回报率2022年7月8日
这并不令人惊讶，但它是值得尊敬的。即使与行业相比，公司的净资产收益率还算不错，但公司的净资产收益率是否得到了高负债水平的帮助，还是值得一查的。如果一家公司承担了太多债务，那么它拖欠利息的风险就会更高。您可以访问我们为吉林电力股份有限公司确定的两个风险风险控制面板在我们的平台上是免费的。
债务对股本回报率的重要性
几乎所有的公司都需要资金来投资于业务，以增加利润。投资的现金可以来自上一年的利润(留存收益)、发行新股或借款。在前两种情况下，净资产收益率将抓住这种资本增长的用途。在后一种情况下，用于增长的债务将提高回报，但不会影响总股本。这将使净资产收益率看起来比不使用债务的情况下更好。
吉林电力的债务及其5.3%的净资产收益率
我们认为吉林电力有限公司使用了大量的债务来最大化其回报，因为它的债务与股本比率明显更高，为3.04。在我们的书中，相当低的净资产收益率和高的债务股本比率的组合是负面的。
摘要
股本回报率在比较不同企业的质量时很有用。一家能够在没有债务的情况下实现高股本回报率的公司可以被认为是一家高质量的企业。如果两家公司的净资产收益率相同，那么我通常会倾向于债务较少的那一家。
但净资产收益率只是一个更大的谜题的一部分，因为高质量企业的市盈率往往很高。重要的是要考虑其他因素，比如未来的利润增长，以及未来需要多少投资。因此，你可能想看看这张数据丰富的公司预测互动图表。
但请注意：吉林电力股份有限公司可能不是买入的最佳股票。所以让我们来看看这个免费高净资产收益率和低负债的有趣公司名单。
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本文由Simply Wall St.撰写，具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论，我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议，也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意，我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。
