This article is intended for those of you who are at the beginning of your investing journey and want to learn about Return on Equity using a real-life example.
Oceanus Group Limited (SGX:579) delivered an ROE of 141.01% over the past 12 months, which is an impressive feat relative to its industry average of 8.14% during the same period. However, whether this above-industry ROE is actually impressive depends on if it can be maintained. This can be measured by looking at the company’s financial leverage. With more debt, 579 can invest even more and earn more money, thus pushing up its returns. However, ROE only measures returns against equity, not debt. This can be distorted, so let’s take a look at it further.