Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). We'll use ROE to examine Cushman & Wakefield plc (NYSE:CWK), by way of a worked example.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Cushman & Wakefield
How Is ROE Calculated?
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 Cushman & Wakefield is:
20% = US$312m ÷ US$1.6b (Based on the trailing twelve months to September 2022).
The 'return' is the income the business earned over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.20 in profit.
Does Cushman & Wakefield Have A Good ROE?
By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. Pleasingly, Cushman & Wakefield has a superior ROE than the average (14%) in the Real Estate industry.
NYSE:CWK Return on Equity November 9th 2022
That is a good sign. However, bear in mind that a high ROE doesn't necessarily indicate efficient profit generation. 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 Cushman & Wakefield visit our risks dashboard for free.
How Does Debt Impact Return On Equity?
Companies usually need to invest money to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.
Cushman & Wakefield's Debt And Its 20% ROE
Cushman & Wakefield does use a high amount of debt to increase returns. It has a debt to equity ratio of 2.04. While its ROE is respectable, it is worth keeping in mind that there is usually a limit as to how much debt a company can use. 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.
Conclusion
Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. If two companies have around the same level of debt to equity, and one has a higher ROE, I'd generally prefer the one with higher ROE.
But when a business is high quality, the market often bids it up to a price that reflects this. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So you might want to check this FREE visualization of analyst 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.
許多投資者仍在學習在分析股票時可能有用的各種指標。這篇文章是為那些想了解股本回報率(ROE)的人準備的。我們將使用淨資產收益率來分析高緯物業(紐約證券交易所代碼：CWK)，作為一個實際例子。
淨資產收益率，即股本回報率，是評估一家公司從股東那裏獲得投資回報的有效程度的有用工具。簡而言之，它是用來評估一家公司相對於其權益資本的盈利能力。
查看我們對高緯物業的最新分析
淨資產收益率是如何計算的？
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，高緯物業的淨資產收益率為：
20%=3.12億美元×16億美元(基於截至2022年9月的12個月的往績)。
“回報”指的是企業在過去一年中獲得的收入。另一種想法是，每價值1美元的股本，公司就能夠賺取0.20美元的利潤。
高緯物業的淨資產收益率好嗎？
通過將一家公司的淨資產收益率(ROE)與其行業平均水平進行比較，我們可以快速衡量它有多好。然而，這種方法只是作為一種粗略的檢查，因為在同一行業分類中，公司確實有很大的不同。令人欣喜的是，高緯物業的淨資產收益率(ROE)高於房地產行業的平均水平(14%)。
紐約證券交易所：CWK股本回報率2022年11月9日
這是一個好兆頭。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。除了淨利潤的變化外，高淨資產收益率也可能是高負債相對於股本的結果，這表明存在風險。要了解我們為高緯物業確定的兩個風險，請免費訪問我們的風險儀錶板。
債務對股本回報率有何影響？
公司通常需要投入資金來增加利潤。這些現金可以來自發行股票、留存收益或債務。在第一種和第二種選擇的情況下，淨資產收益率將反映現金用於增長的這種情況。在後一種情況下，增長所需的債務將提高回報，但不會影響股東權益。因此，債務的使用可以提高淨資產收益率，儘管打個比方説，在暴風雨天氣的情況下會有額外的風險。
高緯物業的債務及其20%的淨資產收益率
高緯物業確實使用了大量債務來增加回報。它的債務與股本比率為2.04。雖然它的淨資產收益率是可觀的，但值得記住的是，一家公司可以使用的債務通常是有限制的。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。
結論
股本回報率是我們比較不同公司業務質量的一種方式。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。如果兩家公司的債務權益比大致相同，而其中一家公司的淨資產收益率更高，我通常會更喜歡淨資產收益率更高的那家公司。
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。相對於股價反映的預期，利潤增長率是一個特別重要的考慮因素。因此，你可能想查看分析師對該公司預測的免費可視化。
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。
對這篇文章有什麼反饋嗎？擔心內容嗎？ 保持聯繫直接與我們聯繫。或者，也可以給編輯組發電子郵件，地址是implywallst.com。
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。
