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hey i read this artcile on ROE ( the link is http://www.investope...l/03/100103.asp ), and it was quite good, but i had a few questions, it would be very nice if someone could help me with them.
firstly, as he says gateway;s roe was negative, how can roe be negative, if a co. decides simply not to pay anything then shouldnt it be zero ?
secondly, the net income used in roe is after tax or before tax ?
when we say shareholder equity ( in the formula ), it means ISSUE ( or will it be market price) price of shares * no of outstanding shares, isnt it ?
why cant a company grow faster than its current roe without raising additional cash ?
i also read an artcile on EPS, now is it that roe and eps is the same thing, accept the fact that EPS is per share and ROE an overall figure ?
thanks in advance
ashish
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Return On Equity
a few questions ???????
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#1
indian_investor 
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Posted 24 January 2004 - 04:15 PM
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#2
alceringa
- Associate Professor of Stock Proctology
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Posted 24 January 2004 - 06:59 PM
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how can roe be negative, if a co. decides simply not to pay anything then shouldnt it be zero ?
ROE will be negative for the time period evaluated if the company lost money (had negative earnings) during that time.
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secondly, the net income used in roe is after tax or before tax ?
"Net Income" is income after all business expenses, including taxes.
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when we say shareholder equity ( in the formula ), it means ISSUE ( or will it be market price) price of shares * no of outstanding shares, isnt it ?
"Shareholder equity" has nothing to do with stock price. Shareholder equity is calculated from the company's balance sheet. Shareholder equity for a company is like "net worth" for a person- or the same as Total Assests minus Total Liabilities.
The price of shares * number of shares outstanding is often called "Market Capitalization"
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why cant a company grow faster than its current roe without raising additional cash ?
A company can grow faster than current ROE without raising additional cash. Anything that improves earnings, such as better operating margins, will allow the company to grow faster, as measured by ROE.
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i also read an artcile on EPS, now is it that roe and eps is the same thing, accept the fact that EPS is per share and ROE an overall figure ?
NO! Maybe you should read those articles again.
All the discussion about these financial metrics assumes the numbers reported are "real" to begin with.
"Americans can always be counted on to do the right thing...after they have exhausted all other possibilities."
Churchill
"You can fool some of the people all of the time."
Lincoln
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
Jefferson
Churchill
"You can fool some of the people all of the time."
Lincoln
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
Jefferson
#3
indian_investor
- Stock Proctology Intern
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- Group: Members
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- Joined: 29-December 03
Posted 26 January 2004 - 01:50 PM
hey thanks so much alceringa
it was very nice of u to take time and repyly to this.
why does he say so in the article then ?
whats the basic difference between roe and eps then ?
well this is something i hear from every other person, all financial managers cook the book, but then why in this world, do all investors, all financial websites, papers, channels, investors, rely on the figures or give so much importance to them ? i mean if they can be manipulated they should be of no significance at all, specially in countries where govt's arent good enough to constantly track company frauds ?
regards
ashish
it was very nice of u to take time and repyly to this.
Quote
why cant a company grow faster than its current roe without raising additional cash ?
A company can grow faster than current ROE without raising additional cash. Anything that improves earnings, such as better operating margins, will allow the company to grow faster, as measured by ROE.
A company can grow faster than current ROE without raising additional cash. Anything that improves earnings, such as better operating margins, will allow the company to grow faster, as measured by ROE.
why does he say so in the article then ?
Quote
i also read an artcile on EPS, now is it that roe and eps is the same thing, accept the fact that EPS is per share and ROE an overall figure ?
NO! Maybe you should read those articles again.
NO! Maybe you should read those articles again.
whats the basic difference between roe and eps then ?
Quote
All the discussion about these financial metrics assumes the numbers reported are "real" to begin with.
well this is something i hear from every other person, all financial managers cook the book, but then why in this world, do all investors, all financial websites, papers, channels, investors, rely on the figures or give so much importance to them ? i mean if they can be manipulated they should be of no significance at all, specially in countries where govt's arent good enough to constantly track company frauds ?
regards
ashish
#4
alceringa
- Associate Professor of Stock Proctology
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- Group: Moderators
- Posts: 4,650
- Joined: 09-September 01
Posted 26 January 2004 - 07:58 PM
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why does he say so in the article then ?
Don't know. Why not ask him?
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whats the basic difference between roe and eps then ?
ROE is profit divided by shareholders equity. EPS is profit divided by number of shares.
Quote
well this is something i hear from every other person, all financial managers cook the book, but then why in this world, do all investors, all financial websites, papers, channels, investors, rely on the figures or give so much importance to them ?
The stoolies don't. Isn't that why you are here? Do you subscribe to Doc's Anals? The essence of TA is that none of that stuff matters. In TA, the only thing that matters is what the charts say.
Good luck in your trading.
"Americans can always be counted on to do the right thing...after they have exhausted all other possibilities."
Churchill
"You can fool some of the people all of the time."
Lincoln
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
Jefferson
Churchill
"You can fool some of the people all of the time."
Lincoln
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
Jefferson
#5
indian_investor
- Stock Proctology Intern
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- Group: Members
- Posts: 20
- Joined: 29-December 03
Posted 27 January 2004 - 01:17 PM
hey thanks for the reply mate.
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