Thread 🧵explaining #ROE & #ROCE and its use in #FundamentalAnalysis
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#FundamentalAnalysis #StockMarket
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Return on Equity (#ROE) and Return on Capital Employed (#ROCE) are two important Financial Ratios used in #FundamentalAnalysis of Stocks.
#StockMarket #Investing
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Return on Equity (ROE) is the ratio of Net Income (Net Profit) of a company and it’s Total Equity (Shareholder's Equity).
Here - Shareholders Equity = Share Capital + Reserves & Surplus.
#StockMarket #Investing #FundamentalAnalysis
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#ROE is a measure of how much net profit a company is making for every rupee invested by its shareholders in the company.
It can be said that higher the ROE, better it is for the equity shareholders. It tells shareholders about how effectively their money is being used.
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However, you should not trust high ROE blindly. Biggest drawbacks or weaknesses of ROE is that it completely ignores debt.
Hence for companies having high levels of debt, ROE will give a higher but misleading value & therefore we need to look at #ROCE along with #ROE.
