Return on Equity (Roe) Is Research Paper

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Most significantly, organizations and shareholders may be familiar with projects that are on their own terrain (local) and thus more equipped to guarantee a higher IRR. Either way, IRR should only be used to decide whether a single project is worth investing in.

The disadvantages of using ROE in foreign investments is that ROE is commonly used to compare businesses that are in the same industry and since countries have different economic variables (socio-political aside from different currency) it would be hard for the shareholder to accurately evaluate his ROE (Stock Market Investors. Web). There is another problem: since ROE consists of three main characteristics - profitability, management of assets, and economic leverage, the manager will need to know how to do the job effectively and get it done in order to show results in each of these three elements. Familiarity with job and involvement with company and its employees is often (although not always) better achieved on local terrain (Essortment: Web).

The formula for Return on Equity is:

The Company's overall (or net) profit is divided by the Average Shareholder Equity for the period.

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Details of the net income are usually found on the Company's most recent Statement of earning / Balance sheet. The Average Shareholder Equity for the period is the difference between the total assets and total liabilities and can also be found on the statement.

Using that theorem, we can figure out Wal-Mart's ROE for Jan 31, 2011 (23.91). Its net income was 16,389 and its shareholder's equity was 68,542.

A similar company is Target whose ROE for Jan 29, 2011 was 18.85. Its net income was $2,920. Its shareholder equity was 15,487.

Reference

essortment: return on equity vs. return on capital

http://www.essortment.com/return-equity-vs.-return-capital-20098.html

Stock Market Investors. Return on equity calculations and drawbacks http://www.stock-market-investors.com/pick-a-stock-guides/return-on-equity-calculation-and-drawbacks.html

Stock Analysis on net. Wal-Mart Stores Inc. (WMT)

http://www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc./Ratios/DuPont

Target Corp. (TGT) | Profitability Analysis

http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Ratios/Profitability#ROE.....

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