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.
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.
许多投资者仍在学习在分析股票时可能有用的各种指标。本文适用于那些想了解股本回报率（ROE）的人。我们将使用ROE来研究中国平安保险（集团）有限公司（HKG: 2318），举一个行之有效的例子。
股本回报率或投资回报率是用于评估公司管理层利用公司资本效率的关键指标。简而言之，投资回报率显示了每美元从其股东投资中产生的利润。
查看我们对中国平安保险（集团）公司的最新分析
如何计算股本回报率？
这个 股本回报率公式 是：
股本回报率 = 净利润（来自持续经营）≥ 股东权益
因此，根据上述公式，中国平安保险（集团）公司的投资回报率为：
11% = cn¥119b ≥ cn¥1.1t（基于截至2022年9月的过去十二个月）。
“回报” 是过去十二个月的税后收入。另一种看法是，每持有价值1港元的股权，该公司就能获得0.11港元的利润。
中国平安保险（集团）公司的投资回报率是否良好？
确定公司是否具有良好的股本回报率的一种简单方法是将其与该行业的平均水平进行比较。重要的是，这远非一个完美的衡量标准，因为公司在同一行业分类中存在显著差异。令人欣慰的是，中国平安保险（集团）公司的投资回报率高于保险业的平均水平（7.6％）。
SEHK: 2318 股本回报率 2022 年 11 月 17 日
这就是我们喜欢看到的。但是，请记住，较高的投资回报率并不一定表示有效的利润产生。公司资本结构中较高的债务比例也可能导致较高的投资回报率，而高债务水平可能构成巨大的风险。
债务如何影响股本回报率？
公司通常需要投资来增加利润。这些现金可能来自留存收益、发行新股（股权）或债务。在前两个案例中，投资回报率将利用这种资本来增长。在后一种情况下，使用债务将提高回报，但不会改变权益。因此，使用债务可以提高投资回报率，尽管比喻地说，暴风雨天气会带来额外的风险。
中国平安保险（集团）公司的债务及其11％的投资回报率
中国平安保险（集团）公司显然使用大量债务来提高回报，因为其负债权益比率为1.80。由于投资回报率相当低，而且大量使用债务，目前很难对这项业务感到兴奋。债务会增加风险并减少公司未来的选择，因此您通常希望通过使用它获得一些可观的回报。
结论
股本回报率是我们可以比较不同公司的业务质量的一种方式。能够在不负债过多的情况下获得高股本回报的公司通常质量很好。如果两家公司的投资回报率相同，那么我通常更喜欢负债较少的公司。
但是投资回报率只是更大难题中的一部分，因为高质量的企业通常以高倍的收益进行交易。还必须考虑利润可能增长的速度，相对于当前价格所反映的利润增长预期。因此，您可能需要查看该公司的分析师预测的免费可视化效果。
但请注意： 中国平安保险（集团）公司可能不是最值得买入的股票。所以来看看这个 免费的 投资回报率高、负债低的有趣公司名单。
对这篇文章有反馈吗？对内容感到担忧？ 取得联系 直接和我们联系。 或者，给编辑团队 (at) simplywallst.com 发送电子邮件。
Simply Wall St 的这篇文章本质上是一般性的。 我们仅使用不偏不倚的方法根据历史数据和分析师预测提供评论，我们的文章并非旨在提供财务建议。 它不构成买入或卖出任何股票的建议，也没有考虑您的目标或财务状况。我们的目标是为您提供由基本面数据驱动的长期重点分析。请注意，我们的分析可能未将最新的价格敏感型公司公告或定性材料考虑在内。简而言之，华尔街对上述任何股票都没有头寸。
