Two stocks: A Ltd and B Ltd.
A Ltd had reported $50 million in earnings.
B Ltd had reported $100 million in earnings.
So, is B Ltd a better investment than A Ltd?
To me, not necessarily. This is because, as an investor, I’ll calculate and compare the two stocks based on their Return on Equity (ROE). So let’s say:
A Ltd had reported $250 million in shareholders’ equity.
B Ltd had reported $1 billion in shareholders’ equity.
I would calculate that A Ltd’s ROE is 20% and B Ltd’s ROE is 10%. Hence, I’ll view A Ltd as a better investment than B Ltd as A Ltd had delivered 2x more earnings from its shareholders’ equity as compared to B Ltd. So despite lesser earnings, I would pick A Ltd over B Ltd.
But, that is just one factor that I use to evaluate stock deals. In this session, I would share more insights about ROE.
Content of the webinar:
– What ROE actually measures?
– Why is ROE the most important financial ratio?
– Comparing a stock’s ROE with its peers and past performance
– Other factors: debt level and growth factors.
– How to use features offered by ShareInvestor WebPro
Leave a Reply