Return on Equity = Net Income / Average Common Shareholder's Equity
The higher the ROE the better. Eg,if a company net income in 2012 is 1 million and equity is 10 million, the ROE is 10%. If the equity in 2013 increases by 50% but the net income only increases by 20 %, the ROE drops to 8%. In actual fact the company is considered less profitable.
If we apply EPS, the EPS has increased by 20%, which gives a false impression that the company has made "more" money.
Therefore ROE reflects a company's profit more accurately.
Econs or finance is not my specialty but I just conclude these understanding from my learning. please correct me if I'm wrong.
China based stock's Trustworthiness= Show us your Divident, show us your Consistent Result, show us your Growing Price. Then I would ride with the Dragon.
ROE and PE are not the only two indicators to look at. The China stocks have low dividend yield. Moreover look at the types of business they engage in: stationery, shoes.. What are the potentials for growth? Bottomline is: public confidence is lacking
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Posted by fishbone > 2013-04-18 01:13 | Report Abuse
ROE > 10 and PE < 10 are good companies