Return on Equity (ROE): The Most Industry-Specific “Generalist” Metric
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- Опубликовано: 17 июл 2024
- Learn more here: breakingintowallstreet.com/co...
This tutorial will explain Return on Equity (ROE), including why it's critical for banks, insurance firms, and regulated utility companies, but less important in other sectors.
Files & Resources:
breakingintowallstreet.com/kb...
Table of Contents:
0:00 Introduction
4:36 Part 1: Why ROE for Banks and Insurance?
5:35 Part 2: ROE for Banks (JPM, Citi, Wells, and BofA)
7:42 Part 3: ROE for Utilities (MGE Energy)
11:40 Recap and Summary
Files & Resources:
breakingintowallstreet.com/kb/financial-statement-analysis/return-on-equity-roe/
Table of Contents:
0:00 Introduction
4:36 Part 1: Why ROE for Banks and Insurance?
5:35 Part 2: ROE for Banks (JPM, Citi, Wells, and BofA)
7:42 Part 3: ROE for Utilities (MGE Energy)
11:40 Recap and Summary
Something to add, it's easy to get an R^2 of 0.99 when you have only 3 data points. If you added in more companies, things could change.
That is true, but even if you expand the set of banks here (not done in the interest of time), R^2 is still quite high (over 0.9). It's higher correlation than pretty much any other operational metric / valuation multiple pairing in any industry.
Hi,
What are your thoughts on capitalizing for instanse R&D which affects ebit and profit as a whole like professor Aswath suggests?
That would also affect in computing ROE and ROIC.
I would love to hear your thoughts on that since I'm trying to learn as much as possible.
Thank you!
We tend not to do this because it over-complicates the analysis and doesn't change anything as long as you calculate R&D consistently for all companies in the set. Also, R&D in general is not a major expense for banks, insurance firms, and utility companies, which are the only 3 industries where ROE is important. If you do this, ROE will tend to increase because the R&D amortization in the numerator will be less than the normal annual expense (cash outflow), and the denominator will increase due to higher Equity to balance the R&D Asset on the other side - but usually it's a smaller increase, percentage-wise, than the numerator (but large variance by company/industry).
@@financialmodeling Alright. Thanks very much!
have you done the same for ROIC?
Yes, please see the previous videos in the channel.
For which job roles is this course mostly focused on
Please see: mergersandinquisitions.com/breaking-into-wall-street-biws/