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. To keep the lesson grounded in practicality, we'll use ROE to better understand Shanghai Zhongyida Co., Ltd. (SHSE:900906).
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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
Check out our latest analysis for Shanghai Zhongyida
How Do You Calculate Return On Equity?
Return on equity 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 Shanghai Zhongyida is:
41% = CN¥72m ÷ CN¥175m (Based on the trailing twelve months to June 2022).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.41 in profit.
Does Shanghai Zhongyida Have A Good Return On Equity?
By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. Pleasingly, Shanghai Zhongyida has a superior ROE than the average (8.1%) in the Machinery industry.
![roe](https://usnewsfile.futunn.com/pic/0-15066761-0-d9622521368fe5f83f6ddd8f88019cbc.png/big)
SHSE:900906 Return on Equity September 27th 2022
That's what we like to see. However, bear in mind that a high ROE doesn't necessarily indicate efficient profit generation. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk.
The Importance Of Debt To Return On Equity
Virtually all companies need money to invest in the business, to grow profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the first and second cases, the ROE will reflect this use of cash for investment in the business. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. That will make the ROE look better than if no debt was used.
Combining Shanghai Zhongyida's Debt And Its 41% Return On Equity
It appears that Shanghai Zhongyida makes extensive use of debt to improve its returns, because it has an alarmingly high debt to equity ratio of 5.25. Its ROE is clearly quite good, but it seems to be boosted by the significant use of debt by the company.
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 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. Check the past profit growth by Shanghai Zhongyida by looking at this visualization of past earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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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,本文将讨论如何使用股本回报率(ROE)来更好地了解企业。为了让这一课立足于实践,我们将使用净资产收益率来更好地了解上海中益达股份有限公司(上海证券交易所代码:900906)。
股本回报率或净资产收益率是股东要考虑的一个重要因素,因为它告诉他们他们的资本再投资的效率。换句话说,这是一个衡量公司股东提供的资本回报率的盈利比率。
查看我们对上海中怡达的最新分析
你如何计算股本回报率?
股本回报率可使用以下公式计算:
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,上海中怡达的净资产收益率为:
41%=7200万元×1.75亿元(以截至2022年6月的12个月为基础)。
“回报”指的是一家公司过去一年的收益。另一种说法是,公司每持有价值1美元的股票,就能赚取0.41美元的利润。
上海中怡达的股本回报率高吗?
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。然而,这种方法只是作为一种粗略的检查,因为在同一行业分类中,公司确实有很大的不同。令人欣喜的是,上海中益达的净资产收益率(ROE)高于机械行业的平均水平(8.1%)。
![roe](https://usnewsfile.futunn.com/pic/0-15066761-0-d9622521368fe5f83f6ddd8f88019cbc.png/big)
上证综指:900906股本回报率2022年9月27日
这就是我们希望看到的。然而,请记住,高净资产收益率并不一定意味着有效的利润创造。除了净利润的变化外,高净资产收益率也可能是高负债相对于股本的结果,这表明存在风险。
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。这些现金可以来自留存收益、发行新股(股权)或债务。在第一种和第二种情况下,净资产收益率将反映对企业投资的现金使用情况。在后一种情况下,增长所需的债务将提高回报,但不会影响股东权益。这将使净资产收益率看起来比不使用债务的情况下更好。
结合上海中怡达的债务及其41%的股本回报率
上海中怡达似乎大量利用债务来提高回报,因为它的债务股本比率高得惊人,高达5.25。其净资产收益率显然相当不错,但似乎是受到了该公司大量使用债务的提振。
结论
股本回报率在比较不同企业的质量时很有用。在我们的账目中,最高质量的公司拥有高股本回报率,尽管债务水平较低。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。通过查看过去收益、收入和现金流的可视化来检查上海中怡达过去的利润增长情况。
当然了,如果你把目光投向别处,你可能会发现这是一笔很棒的投资。所以让我们来看看这个免费有趣的公司名单。
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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。