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 CGN New Energy Holdings Co., Ltd. (HKG:1811).
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for CGN New Energy Holdings
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for CGN New Energy Holdings is:
13% = US$197m ÷ US$1.5b (Based on the trailing twelve months to June 2022).
The 'return' is the profit over the last twelve months. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.13 in profit.
Does CGN New Energy Holdings 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. As you can see in the graphic below, CGN New Energy Holdings has a higher ROE than the average (8.4%) in the Renewable Energy industry.
SEHK:1811 Return on Equity September 19th 2022
That's clearly a positive. 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. You can see the 2 risks we have identified for CGN New Energy Holdings by visiting our risks dashboard for free on our platform here.
Why You Should Consider Debt When Looking At ROE
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 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.
Combining CGN New Energy Holdings' Debt And Its 13% Return On Equity
It seems that CGN New Energy Holdings uses a huge volume of debt to fund the business, since it has an extremely high debt to equity ratio of 3.96. Its ROE is respectable, but it's not so impressive once you consider all of the debt.
Summary
Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. 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 when a business is high quality, the market often bids it up to a price that reflects this. 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 I think it may be worth checking this free report on analyst forecasts for the company.
If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity 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.
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。通过边做边学的方式，我们将看到净资产收益率，以更好地了解中广核新能源控股有限公司(HKG：1811)。
股本回报率(ROE)是用来评估公司管理层利用公司资本效率的关键指标。换句话说，它揭示了该公司成功地将股东投资转化为利润。
查看我们对中广核新能源控股的最新分析
如何计算股本回报率？
这个净资产收益率公式是：
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，中广核新能源控股的ROE为：
13%=1.97亿美元×15亿美元(基于截至2022年6月的12个月)。
“收益”是过去12个月的利润。这意味着，每1港元的股东权益，该公司就会产生0.13港元的利润。
中广核新能源控股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。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。如下图所示，中广核新能源控股的净资产收益率高于可再生能源行业的平均水平(8.4%)。
联交所：1811年9月19日
这显然是一个积极的因素。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。您可以通过访问我们的风险控制面板在我们的平台上是免费的。
为什么在考虑净资产收益率时应该考虑债务
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。
将中广核新能源控股的债务和13%的股本回报率结合起来
中广核新能源控股似乎使用了巨额债务来为这项业务提供资金，因为它的债务与股本比率极高，为3.96。它的净资产收益率是可观的，但如果你考虑到所有的债务，就不会那么令人印象深刻了。
摘要
股本回报率是衡量一家企业产生利润并将其返还给股东的能力的有用指标。能够在没有太多债务的情况下实现高股本回报率的公司通常质量良好。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。
但当一项业务是高质量的时，市场往往会将其抬高到反映这一点的价格。相对于当前价格反映的利润增长预期，也必须考虑利润可能增长的速度。所以我觉得这可能值得一查免费分析师对该公司的预测报告。
如果你更愿意看看另一家公司--一家财务状况可能更好的公司--那么不要错过这一点免费列出了一些有趣的公司，这些公司拥有高股本回报率和低债务。
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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。
