roic - roe+_+roic
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7/26/2019 ROIC - ROE+_+ROIC
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ROE / ROICROE / ROIC
By Brendan Mathews
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7/26/2019 ROIC - ROE+_+ROIC
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Return on EquityReturn on Equity
Definition:
ROE = One years earnings / Shareholders equity
Driven by three things:
! "rofit #argins
$! %sset Manage#ent
&! 'everage
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7/26/2019 ROIC - ROE+_+ROIC
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Return on EquityReturn on Equity
ROE =
(earnings / sales) *
(sales / assets) *
(assets / equity)
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7/26/2019 ROIC - ROE+_+ROIC
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Return on Invested CapitalReturn on Invested Capital
RO+, = Earnings / -Equity . Debt
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ROE vs ROICROE vs ROIC
Business %
0 Started with 123222
0 Earned 13422 in styear
0 ROE = 54
Business B
0 Started with 123222
0 Earned 13$22 in styear
0 ROE = 5$
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7/26/2019 ROIC - ROE+_+ROIC
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ROIC vs ROEROIC vs ROE
Business %
0 Started with 123222
0 Earned 13422 in styear
0 ROE = 54
0Borrowed $5,000.
0ROIC = %10
Business B
0 Started with 123222
0 Earned 13$22 in styear
0 ROE = 5$
0Zero Debt
0ROIC = %12
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7/26/2019 ROIC - ROE+_+ROIC
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ConclusionConclusion
6he best businesses have a high RO+, / ROE
and little debt!
78ES6+O9S
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