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). By way of learning-by-doing, we'll look at ROE to gain a better understanding of Encompass Health Corporation (NYSE:EHC).
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. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for Encompass Health
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Encompass Health is:
25% = US$438m ÷ US$1.7b (Based on the trailing twelve months to September 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.25 in profit.
Does Encompass Health Have A Good Return On Equity?
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. As is clear from the image below, Encompass Health has a better ROE than the average (13%) in the Healthcare industry.
![roe](https://newsfile.futunn.com/pic/0-22336027-0-3ad69129b6310659ace4954c530db98b.png/big)
NYSE:EHC Return on Equity December 15th 2022
That is a good sign. With that said, a high ROE doesn't always indicate high profitability. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk.
The Importance Of Debt To Return On Equity
Most companies need money -- from somewhere -- to grow their profits. That cash can come from retained earnings, issuing new shares (equity), 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. That will make the ROE look better than if no debt was used.
Encompass Health's Debt And Its 25% ROE
Encompass Health clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.25. There's no doubt the ROE is impressive, but it's worth keeping in mind that the metric could have been lower if the company were to reduce its debt. Debt does bring extra risk, so it's only really worthwhile when a company generates some decent returns from it.
Summary
Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In our books, the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better.
Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So I think it may be worth checking this free report on 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.
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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。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Enneass Health Corporation(紐約證券交易所代碼:EHC)。
淨資產收益率,即股本回報率,是評估一家公司從股東那裡獲得投資回報的有效程度的有用工具。換句話說,它揭示了該公司成功地將股東投資轉化為利潤。
查看我們對包羅萬象健康的最新分析
你如何計算股本回報率?
這個淨資產收益率公式是:
股本回報率=(持續經營的)淨利潤?股東權益
因此,根據上面的公式,Engrass Health的淨資產收益率為:
25%=4.38億美元×17億美元(基於截至2022年9月的12個月的往績)。
“回報”就是年度利潤。這意味著,股東權益每增加1美元,公司就會產生0.25美元的利潤。
包羅萬象健康公司是否有良好的股本回報率?
通過將一家公司的淨資產收益率(ROE)與其行業平均水準進行比較,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。從下圖可以清楚地看出,Enneass Health的淨資產收益率(ROE)高於醫療行業的平均水準(13%)。
![roe](https://newsfile.futunn.com/pic/0-22336027-0-3ad69129b6310659ace4954c530db98b.png/big)
紐約證券交易所:EHC股本回報率2022年12月15日
這是一個好兆頭。話雖如此,高淨資產收益率並不總是意味著高盈利。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。
債務對股本回報率的重要性
大多數公司都需要資金--從某個地方--來增加利潤。這些現金可以來自留存收益、發行新股(股權)或債務。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,增長所需的債務將提高回報,但不會影響股東權益。這將使淨資產收益率看起來比不使用債務的情況下更好。
包括Health的債務及其25%的淨資產收益率
Enneass Health顯然使用了大量的債務來提高回報,因為它的債務與股本比率為1.25。毫無疑問,淨資產收益率令人印象深刻,但值得記住的是,如果該公司削減債務,這一指標可能會更低。債務確實會帶來額外的風險,所以只有當一家公司從債務中獲得一些可觀的回報時,它才是真正值得的。
摘要
股本回報率是衡量一家企業產生利潤並將其返還給股東的能力的有用指標。在我們的賬目中,最高質量的公司擁有高股本回報率,儘管債務水準較低。在其他條件相同的情況下,淨資產收益率越高越好。
話雖如此,雖然淨資產收益率是衡量業務質量的有用指標,但你必須考慮一系列因素,才能確定購買股票的合適價格。重要的是要考慮其他因素,比如未來的利潤增長,以及未來需要多少投資。所以我覺得這可能值得一查免費分析師對該公司的預測報告。
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。