One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. To keep the lesson grounded in practicality, we'll use ROE to better understand Nordstrom, Inc. (NYSE:JWN).
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for Nordstrom
How To 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 Nordstrom is:
62% = US$364m ÷ US$589m (Based on the trailing twelve months to April 2022).
The 'return' refers to a company's earnings over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.62.
Does Nordstrom 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. Pleasingly, Nordstrom has a superior ROE than the average (31%) in the Multiline Retail industry.
NYSE:JWN Return on Equity August 12th 2022
That's what we like to see. Bear in mind, a high ROE doesn't always mean superior financial performance. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk. To know the 2 risks we have identified for Nordstrom visit our risks dashboard for free.
How Does Debt Impact Return On Equity?
Most companies need money -- from somewhere -- to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same.
Combining Nordstrom's Debt And Its 62% Return On Equity
We think Nordstrom uses a significant amount of debt to maximize its returns, as it has a significantly higher debt to equity ratio of 4.85. While its ROE is no doubt quite impressive, it could give a false impression about the company's returns given that its huge debt could be boosting those returns.
Summary
Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. 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. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. 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.
我们能做的最好的投资之一就是我们自己的知识和技能。考虑到这一点,本文将讨论如何使用股本回报率(ROE)来更好地了解企业。为了使课程立足于实践,我们将使用净资产收益率来更好地了解诺德斯特龙公司(纽约证券交易所代码:JWN)。
股本回报率(ROE)是用来评估公司管理层利用公司资本效率的关键指标。简而言之,它是用来评估一家公司相对于其权益资本的盈利能力。
查看我们对诺德斯特龙的最新分析
如何计算股本回报率?
这个股本回报率公式是:
股本回报率=(持续经营的)净利润?股东权益
因此,根据上述公式,诺德斯特龙的净资产收益率为:
62%=3.64亿美元×5.89亿美元(基于截至2022年4月的12个月的往绩)。
“回报”指的是一家公司过去一年的收益。因此,这意味着股东每投资1美元,公司就会产生0.62美元的利润。
诺德斯特龙的净资产收益率好吗?
可以说,评估公司净资产收益率最简单的方法是将其与所在行业的平均水平进行比较。这种方法的局限性是,一些公司与其他公司有很大的不同,甚至在相同的行业分类中也是如此。令人高兴的是,Nordstrom的净资产收益率(ROE)高于多线零售行业的平均水平(31%)。
纽约证券交易所:JWN股本回报率2022年8月12日
这就是我们希望看到的。请记住,高净资产收益率并不总是意味着更好的财务表现。除了净利润的变化外,高净资产收益率也可能是高负债相对于股本的结果,这表明存在风险。要了解我们为诺德斯特龙确定的两个风险,请免费访问我们的风险仪表板。
债务对股本回报率有何影响?
大多数公司都需要资金--从某个地方--来增加利润。这些现金可以来自发行股票、留存收益或债务。在前两种情况下,净资产收益率将抓住这种资本增长的用途。在后一种情况下,增长所需的债务将提高回报,但不会影响股东权益。在这种情况下,债务的使用将提高净资产收益率,即使企业的核心经济保持不变。
结合诺德斯特龙的债务和62%的股本回报率
我们认为诺德斯特龙使用了大量的债务来最大化其回报,因为它的债务与股本比率要高得多,为4.85。虽然它的净资产收益率无疑令人印象深刻,但它可能会给人一种关于公司回报的错误印象,因为它的巨额债务可能会提高这些回报。
摘要
股本回报率是衡量一家企业产生利润并将其返还给股东的能力的有用指标。能够在没有太多债务的情况下实现高股本回报率的公司通常质量良好。如果两家公司的净资产收益率相同,那么我通常会倾向于债务较少的那一家。
但当一项业务是高质量的时,市场往往会将其抬高到反映这一点的价格。重要的是要考虑其他因素,比如未来的利润增长,以及未来需要多少投资。因此,你可能想看看这张数据丰富的公司预测互动图表。
当然了,如果你把目光投向别处,你可能会发现这是一笔很棒的投资。所以让我们来看看这个免费有趣的公司名单。
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本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。