Return on equity

market cap structure, it's not only large cap or mid cap.

And the ROEs are also, the Indian company ROEs are actually lower than its own previous historical average.

At the other end was the fact that despite these strengths of growth, lower growth, lower earnings growth, lower ROE, your valuations were supported by very large, strong domestic inflows.

So you had a situation when growth has been lower, valuations are higher.

my team to research and then we'll select opportunities and invest in India.

Our total amount of money that we can pull into India depends on what the portfolio manager in London or Hong Kong thinks about what should their weight be in India.

And that you're likely so saying that I don't have AI, the ROEs are lower, the earnings growth is not

good.

You want a business that literally works tirelessly to turn the cash you give it into even more cash.

Now, on a corporate scale, this exact concept is what we call return on equity, or ROE for short.

It's the core metric that tells you exactly how much profit a company generates using the money invested by its shareholders.

The formula? Super straightforward.

What's really cool is how we can benchmark these numbers.

You can almost think of it like a dashboard for business health.

Generally speaking, an ROE below 10%, yeah, that's usually considered weak.

The company just isn't getting enough bang for its buck.

Now let me take you up here.

As you can see on that financial ratios sheet, there were a couple of other ones, ROA and ROE.

Now ROA is net income over total assets.

ROE is net income over shareholders' equity.

First things first, remember that total assets is liabilities plus owner's equity.

So this denominator will be smaller than that denominator, just mathematically.

This one, shareholder's equity, is just that part of it.

So this denominator is smaller than that denominator.

How much you reinvest I'm going to measure by looking at your retention ratio, the percentage of the net income that you don't pay out as dividends.

How well you reinvest I'm going to measure with a return on equity.

So if you have a retention ratio of 80% and a return on equity of 30%, 80% of 30% is 24%, that becomes a growth in net income.

If you're looking at operating income, the definitions of reinvestment and quality of returns become slightly different.

You measure how much you reinvest with a reinvestment rate.

2007 was a very good year for banks, and I was concerned that if I took those 2007 numbers and used them as my base case numbers in my evaluation, that I'd probably overestimate the growth rate at 13.04%, which is the product of those two numbers.

You're saying, what choice do I have? The case of Deutsche, I looked at a five-year average, and the five-year average retention ratio gave me more reasonable numbers.

I came up with a return on equity of 11.81%, much lower than the current return equity, and a retention ratio of 45.72%.

But the valuation data gets deeply complex and frankly quite ugly when we look at the core economic profit metrics.

The ROE.

The return on equity is negative 2.96%.

And the economic value added, the EVA, is fundamentally negative.

The residual income model fails because you can't model residual income on negative gap earnings.

Yep.

And you can't logically justify the current 7.40 price to book multiple when the ROE is negative.

This brings us to the most critical phrase in the entire valuation analysis, terminal value expectations.

yeah so if we move back to the pre-Abenomics era, because corporate governance reform started with Abenomics 2013.

So before then, average return on equity for the Japanese corporation is something like 4% or 5%.

But now, thanks to the corporate governance reform, average ROE of the Japanese company is now getting closer to the 10% or 9% to 10%.

Yeah.

Does that compare quite well with, say, European markets and the American market?

So Hitachi is a kind of a poster child for the corporate governance reform.

So used to be the... a large low-return conglomerate, but their business portfolio is now more focused on a growing area like a railway or a power grid.

And so that their ROE used to be the 2% to 3%, and now it's more than 10%.

Good afternoon and yatening into the Business Report with me, Chua Tien Tien, as we take you through the moves and views that matter to you in the world of business and finance as you navigate the end of your workday.

And at this, I will discuss the return on equity levels of small cap companies listed on the Singapore Exchange.

That's before turning our attention to China's latest factory activity numbers.

Starting with local news, a study has found that the average small-cap company on the SGX posts a return on equity of negative 4.44%, although that of a median small-cap company is a positive 1.58%.

The figures are based on five-year adjusted average ROE numbers from publicly available Bloomberg data.

Small caps mostly cluster in low single digits on negative territory.

And I have a look and there is a wide swathe of companies.

The mean or the average tells you that there are extremes.

And in my opinion, this is absolutely phenomenal free cash flow growth.

Next, let's switch over and look at the return on equity.

Normally, I like to look at the return on invested capital, but since W.R. Berkley is a financial stock, the return on equity makes more sense here.

And I can see that between two thousand and twelve and two thousand and twenty, the return on equity was pretty stagnant around ten to fifteen percent.

It actually bottomed out in two thousand and twenty at just eight point four percent.

But then in two thousand and twenty-one, it rose to fifteen point four percent.

And once again, it rose in two thousand and twenty-two, climbing above twenty percent.

And since two thousand and twenty-two, it has stayed consistently in that range of around twenty percent.

Yes, it is a structurally more leveraged balance sheet than before the pandemic.

And obviously that is affecting ROE positively here.

But there's a modest uptick in return on assets as well.

Another very important point I need to cover in this podcast is e-commerce.

Sin embargo, este cargo no es monetario, es un one-timer, es un evento aislado, por lo cual no refleja un deterioro como tal del negocio, sino es simplemente el-- la escisión de estos, de estos negocios que también tiene.

Cuando excluyes estos y haces otros ajustes, la utilidad neta tiene un crecimiento del diecinueve por ciento frente al año anterior y el EPS ajustado crece en general un veintidós por ciento frente al año anterior, donde ahí sí supera el consenso y el ROE o el return of equity, la rentabilidad por el patrimonio, también mejoró a un catorce por ciento frente a un do-doce por ciento.

Y aquí sale la dirección y dice: esta era una meta que teníamos al 2027, a finales de 2027, y ahorita en el 2026, en la mitad del año, ya lo logramos.

Ya lo logramos, sí.