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 Chongqing Shunbo Aluminum Co.,Ltd. (SZSE:002996).
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for Chongqing Shunbo AluminumLtd
How To 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 Chongqing Shunbo AluminumLtd is:
17% = CN¥428m ÷ CN¥2.5b (Based on the trailing twelve months to June 2022).
The 'return' is the yearly profit. That means that for every CN¥1 worth of shareholders' equity, the company generated CN¥0.17 in profit.
Does Chongqing Shunbo AluminumLtd 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. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. Pleasingly, Chongqing Shunbo AluminumLtd has a superior ROE than the average (8.9%) in the Metals and Mining industry.
SZSE:002996 Return on Equity October 21st 2022
That is a good sign. Bear in mind, a high ROE doesn't always mean superior financial performance. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk. To know the 4 risks we have identified for Chongqing Shunbo AluminumLtd visit our risks dashboard for free.
How Does Debt Impact Return On Equity?
Companies usually need to invest money to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. 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.
Chongqing Shunbo AluminumLtd's Debt And Its 17% ROE
It's worth noting the high use of debt by Chongqing Shunbo AluminumLtd, leading to its debt to equity ratio of 1.08. While its ROE is pretty respectable, the amount of debt the company is carrying currently is not ideal. Debt does bring extra risk, so it's only really worthwhile when a company generates some decent returns from it.
Summary
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. All else being equal, a higher ROE is better.
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 take a peek at this data-rich interactive graph of 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.
我們能做的最好的投資之一就是我們自己的知識和技能。考慮到這一點，本文將討論如何使用股本回報率(ROE)來更好地瞭解企業。通過邊做邊學的方式，我們將看到淨資產收益率，以更好地瞭解重慶順博鋁業有限公司(SZSE：002996)。
淨資產收益率，即股本回報率，是評估一家公司從股東那裏獲得投資回報的有效程度的有用工具。換句話説，這是一個衡量公司股東提供的資本回報率的盈利比率。
查看我們對重慶順博鋁業有限公司的最新分析
如何計算股本回報率？
可使用以下公式計算淨資產收益率：
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，重慶順博鋁業股份有限公司的淨資產收益率為：
17%=CN元4.28億×CN元25億元(基於截至2022年6月的12個月)。
“回報”就是年度利潤。這意味着，每增加價值1元的股東權益，公司就會產生0.17元的利潤。
重慶順博鋁業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。然而，這種方法只是作為一種粗略的檢查，因為在同一行業分類中，公司確實有很大的不同。令人欣慰的是，重慶順博鋁業股份有限公司的淨資產收益率(ROE)高於金屬和礦業行業的平均水平(8.9%)。
深圳證券交易所：002996股本回報率2022年10月21日
這是一個好兆頭。請記住，高淨資產收益率並不總是意味着更好的財務表現。除了淨利潤的變化外，高淨資產收益率也可能是高負債相對於股本的結果，這表明存在風險。要了解我們為重慶順博鋁業有限公司確定的4個風險，請免費訪問我們的風險儀錶板。
債務對股本回報率有何影響？
公司通常需要投入資金來增加利潤。這些現金可以來自留存收益、發行新股(股權)或債務。在第一種和第二種選擇的情況下，淨資產收益率將反映現金用於增長的這種情況。在後一種情況下，增長所需的債務將提高回報，但不會影響股東權益。這將使淨資產收益率看起來比不使用債務的情況下更好。
重慶順博鋁業有限公司的債務及其17%的淨資產收益率
值得注意的是，重慶順博鋁業有限公司高度利用債務，導致其債務權益比率為1.08。雖然其淨資產收益率相當可觀，但該公司目前揹負的債務規模並不理想。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。
摘要
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。在其他條件相同的情況下，淨資產收益率越高越好。
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，你可能想看看這張數據豐富的公司預測互動圖表。
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。
