The ‘return’ is the amount earned after tax over the last twelve months. A higher profit will lead to a higher ROE. So, as a general rule, a high ROE is a good thing . That means it can be interesting to compare the ROE of different companies.
By comparing a company’s ROE with its industry average, we can get a quick measure of how good it is. ROE tells us about the quality of the business, but it does not give us much of an idea if the share price is cheap. Companies usually need to invest money to grow their profits. The cash for investment can come from prior year profits , issuing new shares, or borrowing.
In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders’ equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking. Combining MJ Gleeson’s Debt And Its 16% Return On Equity MJ Gleeson is free of net debt, which is a positive for shareholders.
Its respectable ROE suggests it is a business worth watching, but it’s even better the company achieved this without leverage. At the end of the day, when a company has zero debt, it is in a better position to take future growth opportunities. The Key Takeaway Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. Companies that can achieve high returns on equity without too much debt are generally of good quality.
So I think it may be worth checking this free report on analyst forecasts for the company . So take a peek at this free list of interesting companies with high ROE and low debt. We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at . It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
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