FMC Corporation (NYSE:FMC) Delivered A Better ROE Than Its Industry
FMC Corporation (NYSE:FMC) Delivered A Better ROE Than Its Industry
While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. By way of learning-by-doing, we'll look at ROE to gain a better understanding of FMC Corporation (NYSE:FMC).
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for FMC
How Do You 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 FMC is:
24% = US$762m ÷ US$3.1b (Based on the trailing twelve months to June 2022).
The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.24.
Does FMC Have A Good ROE?
Arguably the easiest way to assess company's ROE is to compare it with the average in its industry. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. As you can see in the graphic below, FMC has a higher ROE than the average (16%) in the Chemicals industry.
NYSE:FMC Return on Equity August 8th 2022That's clearly a positive. However, bear in mind that a high ROE doesn't necessarily indicate efficient profit generation. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk. To know the 2 risks we have identified for FMC visit our risks dashboard for free.
How Does Debt Impact ROE?
Most companies need money -- from somewhere -- to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. That will make the ROE look better than if no debt was used.
Combining FMC's Debt And Its 24% Return On Equity
FMC clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.24. While no doubt that its ROE is impressive, we would have been even more impressed had the company achieved this with lower debt. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time.
Summary
Return on equity is useful for comparing the quality of different businesses. 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 when a business is high quality, the market often bids it up to a price that reflects this. 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 take a peek at this data-rich interactive graph of forecasts for the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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.
雖然一些投資者已經非常精通財務指標(帽子提示),但本文面向的是那些想要了解股本回報率(ROE)及其重要性的人。通過邊做邊學的方式,我們將關注淨資產收益率,以更好地瞭解FMC公司(紐約證券交易所代碼:FMC)。
股本回報率(ROE)是對一家公司增值和管理投資者資金的效率的測試。簡而言之,淨資產收益率顯示了每一美元相對於其股東投資產生的利潤。
查看我們對FMC的最新分析
你如何計算股本回報率?
這個股本回報率公式是:
股本回報率=(持續經營的)淨利潤?股東權益
因此,根據上述公式,FMC的ROE為:
24%=7.62億美元×31億美元(基於截至2022年6月的12個月)。
“回報”就是年度利潤。因此,這意味着股東每投資1美元,公司就會產生0.24美元的利潤。
FMC的淨資產收益率(ROE)好嗎?
可以説,評估公司淨資產收益率最簡單的方法是將其與所在行業的平均水平進行比較。這種方法的侷限性是,一些公司與其他公司有很大的不同,甚至在相同的行業分類中也是如此。正如你在下圖中看到的,FMC的淨資產收益率(ROE)高於化工行業的平均水平(16%)。
紐約證券交易所:FMC股本回報率2022年8月8日這顯然是一個積極的因素。然而,請記住,高淨資產收益率並不一定意味着有效的利潤創造。尤其是當一家公司使用高水平的債務為其債務融資時,這可能會提高其淨資產收益率,但高槓杆將公司置於風險之中。要了解我們為FMC確定的兩個風險,請免費訪問我們的風險儀錶板。
債務對淨資產收益率有何影響?
大多數公司都需要資金--從某個地方--來增加利潤。投資的現金可以來自上一年的利潤(留存收益)、發行新股或借款。在前兩種情況下,淨資產收益率將抓住這種資本增長的用途。在後一種情況下,用於增長的債務將提高回報,但不會影響總股本。這將使淨資產收益率看起來比不使用債務的情況下更好。
將FMC的債務和24%的股本回報率結合起來
FMC顯然使用了大量債務來提高回報,因為它的債務與股本比率為1.24。雖然毫無疑問,它的淨資產收益率令人印象深刻,但如果該公司以較低的債務實現這一點,我們會更加印象深刻。投資者應該仔細考慮,如果一家公司不能如此輕鬆地借款,它可能會表現如何,因為信貸市場確實會隨着時間的推移而變化。
摘要
股本回報率在比較不同企業的質量時很有用。能夠在沒有太多債務的情況下實現高股本回報率的公司通常質量良好。如果兩家公司的淨資產收益率相同,那麼我通常會傾向於債務較少的那一家。
但當一項業務是高質量的時,市場往往會將其抬高到反映這一點的價格。相對於當前價格反映的利潤增長預期,也必須考慮利潤可能增長的速度。因此,你可能想看看這張數據豐富的公司預測互動圖表。
當然了,如果你把目光投向別處,你可能會發現這是一筆很棒的投資。所以讓我們來看看這個免費有趣的公司名單。
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本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。
譯文內容由第三人軟體翻譯。
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