A closer look at NagaCorp Ltd. (HKG: 3918) Impressive return

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<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "One of the best investments we can make is in For this reason, this article explains how we can better understand a company using Return On Equity (ROE). In order to substantiate the lesson in practice, we use return on investment to better understand NagaCorp GmbH. (HKG: 3918). "data-reactid =" 27 "> One of the best investments we can make is our own knowledge and skills, so this article explains how we can better use Return on Equity (ROE). Understand a company To anchor the lesson in practice, we use ROE to better understand NagaCorp Ltd. (HKG: 3918).

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Our data show NagaCorp has a return on equity of 27% for the last year. One way to demonstrate this is that the company made a profit of HK $ 0.27 for every HK $ of equity. "Data-reactid =" 28 "> Our data show NagaCorp has a return on equity of 27% for the last year. One way to imagine this is for the company to make a profit of HK $ 0.27 for every HK $ of equity.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for NagaCorp "data-reactid =" 29 "> Check out our latest analysis for NagaCorp

How do I calculate the ROE?

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "The Return on equity formula is: "data-reactid =" 31 "> The Return on equity formula is:

Return on equity = net income (from continuing operations) ÷ equity

Or for NagaCorp:

27% = $ 456 million ÷ $ 1.7 billion (based on the last twelve months to June 2019)

Most people know that the net profit is the total after all expenses, but the concept of equity is a little more complicated. This is the total amount of money deposited into the company by shareholders plus any retained earnings. You can calculate equity by subtracting the company's total liabilities from total assets.

What does return on equity mean?

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The return on equity measures a company's profitability versus profit The result is the profit of the past twelve months. A higher profit leads to a higher return on investment. Usually this leads to a higher return on investment. A high ROE is a good thing, It is clear that you can compare different companies with ROE. "Data-reactid =" 37 "> The return on equity measures a company's profitability versus the profit it has made for the company (plus any capital injections). The" return "is the profit of the past twelve months: a higher profit leads to a higher return. A high ROE is a good thing, So you can use the return on investment to compare different companies.

Does NagaCorp have a good return on equity?

Probably the easiest way to measure a company's return on investment is to compare it to the industry average. The limitation of this approach is that some companies also differ significantly from others within the same industry classification. As you can see in the graphic below, NagaCorp has a higher ROE than the average (8.3%) in the hotel industry.

SEHK: 3918 Past Revenue and Net Income, January 4, 2020

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "That is what I like to see. In my book A high ROE almost always requires a closer look. I often check if insiders have bought shares, "data-reactid =" 52 "> That's what I like to see. In my book, high returns almost always require a closer look. For example: I often check if insiders have bought shares,

How does debt affect ROE?

Virtually all companies need money to invest in the business and make profits. The money for investments can come from the previous year's profit (retained earnings), the issue of new shares or the taking out of loans. In the first and second cases, the ROE will reflect this use of cash to invest in the company. In the latter case, the debt required for growth will increase returns, but will not affect equity. Thus, the use of debt can improve ROE, although, metaphorically speaking, there is an additional risk in stormy weather.

NagaCorp's debt and ROE of 27%

Although NagaCorp uses debt, the debt to equity ratio is still low at 0.18. The combination of modest debt and a very impressive ROE suggests that the business is high quality. The economical use of debt to increase the return is often very good for the shareholders. However, this could affect the company's ability to take advantage of future opportunities.

The bottom line on ROE

The return on equity is useful to compare the quality of different companies. Companies that can achieve a high return on equity without excessive debt are generally of good quality. In general, if two companies have the same ROE, I would prefer the one with less debt.

<p class = "Canvas-Atom Canvas-Text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "However, ROE is a useful indicator for the correct course To determine when buying a stock, there are a number of factors that are critical to business quality: future earnings growth and future investment needs, and I think it might be worth checking free Company analyst forecast reportEmagazine.credit-suisse.com/app/art … = 157 & lang = DE Although ROE is a useful indicator of company quality, there are a number of factors that need to be considered in order to get the right price to buy one Identify stock Consider other factors such as future earnings growth and future investment needs. I think it's worth checking this out free Company analyst forecast report.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Of course You could find a fantastic investment if you look elsewhere. So take a look free List of interesting companies."data-reactid =" 64 "> Of course You could find a fantastic investment if you look elsewhere. So take a look free List of interesting companies.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 65 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.