Using Return on Equity to assess stocks

Return on Equity (ROE) is an important indicator for investors. It tells investors how much the company is earning (profits) for the shareholders. It is net profits attributable to shareholders divided by shareholders’ funds calculated as a percentage term.

The higher the ROE, the better for the shareholders. Because it is calculated as percentage term, we can compare one ROE with another ROE of another company.

I had extracted ROE data for some select stocks from Morningstar’s database.

Stock Share Price at 31/12/2014 ROE (%)
StarHub 4.15 374.40
M1 3.61 48.94
SGX 7.81 39.25
Raffles Medical 3.890 18.77
SingPost 1.92 17.35
SingTel 3.90 15.55
Keppel Corp 8.85 13.80
OCBC 10.46 12.51
Keppel Land 3.42 12.08
UOB 24.53 11.94
SembCorp Ind 4.45 11.86
SATS 3.05 11.77
DBS 20.60 10.98
Comfort Delgro 2.60 10.00
SMRT 1.580 9.74
UOL 6.96 8.44
SPH 4.21 8.29
City Dev 10.27 6.06
SBS Transit 500 1.705 4.56
CapitaLand 3.31 4.29
SIA 11.60 1.52
SembCorp Marine 3.26 0.46

Note: StarHub has a unique shareholder fund compared with all other companies. The Group has a very low shareholders’ fund because of substantial goodwill written off.

The table gives an indication of ROE for each company (as computed by Morningstar). The future ROE is not known until the company releases its final annual report.

Please use these data with caution.

Copyright © 2015, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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