Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). We'll use ROE to examine Ping An Insurance (Group) Company of China, Ltd. (HKG:2318), by way of a worked example.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Ping An Insurance (Group) Company of China
How To Calculate Return On Equity?
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 Ping An Insurance (Group) Company of China is:
11% = CN¥119b ÷ CN¥1.1t (Based on the trailing twelve months to September 2022).
The 'return' is the amount earned after tax 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$0.11 in profit.
Does Ping An Insurance (Group) Company of China Have A Good ROE?
One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. Pleasingly, Ping An Insurance (Group) Company of China has a superior ROE than the average (7.6%) in the Insurance industry.
![roe](https://usnewsfile.futunn.com/pic/0-16882084-0-fac3e08fe60567a45d924c55072080ae.png/big)
SEHK:2318 Return on Equity November 17th 2022
That's what we like to see. However, bear in mind that a high ROE doesn't necessarily indicate efficient profit generation. A higher proportion of debt in a company's capital structure may also result in a high ROE, where the high debt levels could be a huge risk .
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 first two cases, the ROE will capture this use of capital to grow. In the latter case, the use of debt will improve the returns, but will not change the equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.
Ping An Insurance (Group) Company of China's Debt And Its 11% ROE
Ping An Insurance (Group) Company of China clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.80. With a fairly low ROE, and significant use of debt, it's hard to get excited about this business at the moment. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it.
Conclusion
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.
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 check this FREE visualization of analyst forecasts for the company.
But note: Ping An Insurance (Group) Company of China 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.
許多投資者仍在學習分析股票時可能有用的各種指標。這篇文章是為那些誰想要了解股權回報率 (ROE).我們將通過一個實例來檢查中國平安保險(集團)股份有限公司(HKG:2318)。
股權回報率或 ROE 是用於評估公司管理層利用公司資本的效率的關鍵衡量標準。簡而言之,ROE 顯示了每美元相對於其股東投資產生的利潤。
查看我們對中國平安保險(集團)公司的最新分析
如何計算權益回報率?
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,中國平安保險(集團)公司的 ROE 為:
11% = 人民幣 119 億元 ÷ 人民幣 1.1 億元(以截至 2022 年 9 月為止的最後十二個月計算)。
「回報」是過去十二個月稅後賺取的金額。另一個想法是,公司每股價值港幣 1 元的股本,便可賺取港幣 0.11 元的利潤。
中國平安保險(集團)公司擁有良好的投資回報率嗎?
確定公司是否具有良好的股權回報的一種簡單方法是將其與其行業的平均水平進行比較。重要的是,這遠非一個完美的措施,因為公司在同一行業分類中有很大差異。令人愉快的是,中國平安保險(集團)公司的投資回報率優於保險業的平均水平(7.6%)。
![roe](https://usnewsfile.futunn.com/pic/0-16882084-0-fac3e08fe60567a45d924c55072080ae.png/big)
聯交所代碼:2318 二零二年十一月十七日股本報表
這就是我們喜歡看到的。但是,請記住,高 ROE 並不一定表示有效的利潤產生。公司資本結構中較高比例的債務也可能導致較高的 ROE,因此高債務水平可能是一個巨大的風險。
債務影響如何對股本的回報?
公司通常需要投資資金來增加利潤。現金可以來自保留盈利,發行新股(股權)或債務。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,使用債務將提高回報,但不會改變權益。因此,使用債務可以改善 ROE,儘管在暴風雨天氣的情況下具有額外的風險,比喻地說。
中國平安保險(集團)公司債務及其 11% 投資回報率
中國平安保險(集團)公司顯然利用高額債務來提高回報,因為它的債務與權益比率為 1.80。由於 ROE 相當低,並且大量使用債務,目前很難對這項業務感到興奮。債務將來會增加風險並減少公司的選擇權,因此您通常希望從使用它中看到一些良好的回報。
结论
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。
但是 ROE 只是一個更大的難題,因為高質量的企業通常以高倍收入進行交易。相對於反映在當前價格中的利潤增長的預期,利潤可能增長的速度也必須考慮。所以,你可能想檢查這個免費的可視化分析師預測的公司。
但請注意: 中國平安保險 (集團) 股份有限公司可能不是最好買的股票。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。