Fuyao and RoE
FuYao and RoE When asked about if there’s only one financial indicator what would Warren Buffett choose, He answered it is ROE. What is so special about this metric? When talked about fundamental in IN the metrics we use most often is PE but seldom do I see people, even sell side analyst mention about ROE. However, especially for value investor, it is financially the compounding factor of an investment. It is also part of the DuPont analysis that is so useful to check the efficiency of a company. If a company earns a 100 millions dollar and it has a payout ratio of 20%, it will give out dividend of 20 millions. But ever wonder how would the company use the remaining 80%? It is of course reinvest into its own businesses. But how could we judge the effectiveness of the retained earning? It is RoE. When company report it has x amount of earning. That earning goes to an account which is owner’s equity. The net income divided by owner’s equity is RoE. It is good indicator on how