Return On Equity (ROE) and why it is important was a subject covered by Wall Street blog “Simply Wall St.” on Friday. ROE was used to examine TEGNA, by way of a worked example.
Here’s what they found.
Over the last twelve months TEGNA has recorded a ROE of 28%. That means that for every $1 worth of shareholders’ equity, it generated $0.28 in profit.
The formula for return on equity is:
Return on Equity = Net Profit ÷ Shareholders’ Equity
Or for TEGNA:
28% = US$408m ÷ US$1.5b (Based on the trailing twelve months to June 2019.)
“The higher the ROE, the more profit the company is making,” Simply Wall St. notes. “So, all else equal, investors should like a high ROE. Clearly, then, one can use ROE to compare different companies.”
Does TEGNA Have A Good ROE?
“By comparing a company’s ROE with its industry average, we can get a quick measure of how good it is,” Simply Wall St. says. “The limitation of this approach is that some companies are quite different from others, even within the same industry classification. Pleasingly, TEGNA has a superior ROE than the average (13%) company in the Media industry.”