Question

What information can be obtained by looking at a firm's ROE for the past 3-5 years? Which specific groups of stakeholders might find that information helpful for decision making? Why?

Answer 1

ROE gives the ratio of Net Income to Equity .The ROE over 3-5 years gives the increase or decrease in profitability with respect to the amount invested by Equity holders. It also indicates the efficiency of operations of a company. By comparing the ROE of company with the benchmark will give an indication of the performance of the company with respect to other industries.

Shareholders of the company or new investors might find this useful. This will help them in taking decision to seller buy the share by comparing it with industry benchmark and also comparing whether it’s increasing or decreasing.

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