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ROE / ROICROE / ROIC

By Brendan Mathews

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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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Return on EquityReturn on Equity

ROE =

(earnings / sales) *

(sales / assets) *

(assets / equity)

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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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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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ConclusionConclusion

6he best businesses have a high RO+, / ROE

and little debt!

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