What is return on equity? - MoneyWeek Investment Tutorials

Like this MoneyWeek Video? Want to find out more on equity returns?
Go to: www.moneyweekvideos.com/what-i... now and you'll get free bonus material on this topic, plus a whole host of other videos.
Search our whole archive of useful MoneyWeek Videos, including:
· The six numbers every investor should know...
www.moneyweekvideos.com/six-nu...
· What is GDP?
www.moneyweekvideos.com/what-i...
· Why does Starbucks pay so little tax?
www.moneyweekvideos.com/why-do...
· How capital gains tax works...
www.moneyweekvideos.com/how-ca...
· What is money laundering?
www.moneyweekvideos.com/what-i...

[@eoin18121971]

I really would love to use an expletive here, this tutorial is effing brilliant. You're giving us gold Tim...keep it up old bean!

[@tim71pos]

It is a great explanation. The conceptual issue not broached is that we are talking about banks. In a banking model the borrowed money used to boost the ROE is actually deposits, considered a liability of the bank. Depositors are investors, though most folks who put money in a bank don't know it. In investment banking the depositors are typically institutional investors or the super rich, and they think of themselves--or should--as investors.

[@kehtang]

Even though i have never been to UK, but i found your vidoes are pretty relevent to huge ranges of audience all over the world

[@Biggaletta1]

Cheers , great video - talking my accountancy exams and this drills home the use of ratios! Will be tuning into the next vid.

[@MrEaglenator]

It has been several years, but you knowledge still is helping lots of amateur investors. Hope you're safe and alright. c:

[@marcobagut]

What an excellent teacher, excellent! Very enjoyful videos too!

[@davidhepburn9391]

These vids are great. Thanks so much. Making studying the IMC a lot easier!

[@MindtalkMusic]

I wish you were my Financial Management tutor at university, I've been taught more in ten minutes than in an hour seminar. Great vids, keep them coming!

[@dearjem]

Thanks Tim. Literally learn so much about investment from your videos

[@blackamericanlesbianprofes4357]

Thank you so much for explaining in detail, very helpful in understanding. But I will be honest out of the great several videos I have watched of yours this is the first one that I found slightly vague or confusing at times with your description and you seemed to repeat a few times. I am a mature (age 35 going on 36) BSc Accounting and Finance International (Black American) student.

[@kerumble]

Excellent as always. Thank you!

[@leonardolucky8820]

Hi.. can you please do a video of ROIC? there are many versions out there. Thanks

[@ayushchhabra6369]

Well, yours are the most informative. Period.

[@georgekhumalo5283]

I like this guy, well spoken and well knowledgeable.

[@alexsutherland8466]

Certainly an accurate calculation of ROE can help predict the outcome of an investment (ROI) especially with an experienced Broker or management. I feel this has been a contributing factor to my increase in ROI since I started investing with the right team.

[@peterwyden9158]

Most definitely.

[@peterwyden9158]

For me Portfolio management helps me articulate the right span to trade,either long term or short term,and the securities to Invest in for a greater chance at profit making.

[@ThucNguyen-js6qv]

Hello Alex.

[@ThucNguyen-js6qv]

Am from Vietnam,and it's been quite a struggle for me manoeuvring the foreign exchange market, there are a lot of things I don't know.

[@ThucNguyen-js6qv]

I've heard of account management and what it entails, but never given it a try,so I would like to know what are the agreement that should be met? Is there a commission price? And can I Participate from here?

[@dJeet303]

excellent Vid, keep up with the good work, really enjoyed

[@NguyenHai-lh6wm]

Tks for ur guidance

[@annu9956]

Please do differentiate between Return on Capital Employed) with ROE (Return on Equity). There IS confusion here. Thanks

[@MonsieurCrypto]

Thank you for your teachings, please keep on.

[@mahadevshirodkar9878]

You are great teacher.

[@hhattingh]

Brilliant video's thanks!

[@rushikeshk25]

Great vids, keep them coming!.....EXCELLENT

[@Carstininvestments]

A return achieved on a mix of debt and equity is not properly a return on equity. For the avoidance of confusion, it is probably better to confine the use of the term strictly to the return achieved on shareholder's equity. Return on capital can be used to describe the return achieved on debt and equity.

[@joshuamanampiu6489]

Simple and clear explanations

[@Carstininvestments]

Aren't you conflating the term of ROCE (Return on Capital Employed) with ROE (Return on Equity)?

[@dollarshergill]

I too thought the same , because interest is always deducted to calculate profit after tax .

[@Carstininvestments]

@@keno9964 Not necessarily. The presenter was including all sources of capital - both debt and equity - in the "E" of ROE when he should really have only been including equity.

[@yasas007]

this guy is amazing thank you so much

[@aliali553]

Sir you are just great. Thank you so much.

[@ThrallsBoys]

Very well explained!

[@jaiwarwick]

Good Work Tim ! ! ! ! !

[@jUish1978]

Totally understood

[@rupaalsingh4047]

One important thing to be mentioned additionally, is that the cost of debt has to be low.... High cost of debt aka interest charges, will be unable to assist in this type of financial engineering as the debt costs would itself eat up into the net profitability margin of the company.

[@Synik111]

Quick question, and I'm a bit new to this - but are corporate loans like your 970k example provided with an expectation to pay back some of the capital as well, or do banks providely these happily on interest-only terms? The reason I ask is that you mentioned that the interest itself is tax deductable (and presumably is a cost against revenue) - but does the capital repayment get accounted for in the same way? If not, it'd be interesting to know how much this impacts the true profit figure & ROE

[@kensmith158]

Excellent. I wish you were my university lecturer.

[@custardthecat5763]

This great to know. The question is, where can we see this information on individual companies ? Is it from balance sheets ? It would be great to see you working this out on a real example having got hold of a company's data.

[@ntimdomfeh1959]

Custard the Cat yes you answered the question yourself. The parameters used in calculating ROE can be found on balance sheets of financial statements. Also you can find ROE of companies in financial databases such as OSIRIS and FAME

[@Who-yo3xh]

thanks great videos

[@carloschu7127]

08:25 For solvency, Debt / Equity is 32% ( 10x over , 2.5 - 3 the normal limit ) But, thanks for the other math explanation

[@phamman88]

Excellent video

[@84xyzabc]

In an example in the latter part of the video, will the amount of 31200 be the equity of next year?

[@lookingforatune]

Excellent!

[@keananocarroll5112]

i love this guy

[@ivanhoe1585]

theres another way to undertand it. the smallest the equitty, (even if theres a lot of doubt) the biggest the effect.

[@Synik111]

BTW, really like your videos :)

[@hhhh-be5tv]

What is the difference between ROI and ROE? Isn't equity just equivalent to investment?

[@MyMrwrestling]

is this the same as return on shareholders funds ?

[@jisanhasnat6770]

Thank you sir, clear explanation.

[@darthforexvader7201]

Hi Im greateful for a response pls! - is sirius minerals PLC an example of good or bad debt for the next 1-2 decades?..

[@catotheelder9524]

You should invest in the Galactic Mining Corporation instead.

[@Azhark94]

ur right, for every one pound share holders invest they get back 153 poounds

[@arfenmalik1717]

Wat is the denomanator when calculating ROE. Is it total capital employed or is it equity employed. U seem to b using total capital as the denomanator

[@annzhang7033]

i also get confused on this part.

[@takenoticeable]

impressed with that calculation of 4% of £970k

[@lukepercy8525]

cheers mate

[@999locke]

there is no return on a stock,y dont you mention this?

[@obaidpatni1508]

Hey there! Can i get your channel? It seems you don't use it anymore?

[@sublue2085]

Don't quite understand it. ROE=net income/equity. Net income is already after interest payment, isn't it? EBIT-Interest-tax=net income (p.a.t). So why does a big interest expense matter for ROE, since it is after interest profit, not before?

[@blackamericanlesbianprofes4357]

I had heard the speaker mention Net Assets not Net Income.

[@savvasioannides5645]

Exactly

[@hcp0scratch]

A+!!! ROE without knowing debt management effectiveness is of little value.

[@downtownballer07]

So is the return on equity in this example 104%?

[@ikrivonos]

Very interesting videos and easy explanations, but I wish you have Russian accent instead of British:)

[@killoreo]

Why have you not had any recent videos?

[@alicewalker645]

He works for Killik & Co now, he’s still doing videos on their channel!

[@adbit007]

So buy companies with zero debt and high RoE....is it?

[@dominickelly6871]

Great video but technically anything multiplied by 100% is itself since 100% is 1

[@apuxx95]

great

[@mowmrong1191]

Nice

[@markbroderick6758]

Legend

[@MrEaglenator]

It's a little dodgy this stuff of return on equity. I mean, if the company has too many liabilities, the ROE will be high because there is too little equity. I rather using return on assets in combination with assets to equity. The first is the efficiency compared to the real investment used in a business, and the second is a measure of how much the company has in comparison of how much it owes.

[@MaxMaxx-tb6nz]

Well, high roe with tolerable roa may indicate what company expands really fast using debt. You may assume grow will only accelerate after company get rid of their debt, so it's a good long term investment

[@pongfoong9523]

I dont get english when you plane me

[@22ounce]

If my lecturer explains such as this I would have no problem with attendance...

[@nazz7704]

"bang for the bucks good" way to explain

[@Kizzy_pop]

If they make a loss, the whole equity is wiped out.

[@virajliyanage4220]

Sup, have you wondered this program called the Intellitus Cash System? (Google it). My uncle says it makes people lots of cold hard cash.

[@WISHQuang]

I see you look like Steven Job

[@999locke]

shareholders do not get any of the profit,what the hell are you talking about? r on e is rubbish.

[@999locke]

you talk about profit and then say return on investment.the profit a company makes has no bearing on stockholders return if they pay a dividend that lowers the stock price which is NOT a return,that is a loss.

[@roake0331]

The British make excellent teachers. I will have my children schooled in Great Britain.

[@blackamericanlesbianprofes4357]

Please don't generalize on just one individual. Not every single lecturer or teacher in the UK educates like this speaker.

[@MyMrwrestling]

no equity is on b/s