Question
According to the textbook: Return on Equity (ROE) is a measure of how the stockholders fared during the year. Because benefiting shareholders is our goal,
According to the textbook:
Return on Equity (ROE) is a measure of how the stockholders fared during the year. Because benefiting shareholders is our goal, ROE is, in an accounting sense, the true bottom-line measure of performance.
Breaking ROE into its constituent parts, by using the DuPont identity, identifies a firms operating efficiency, asset use, and financial leverage. However, these measures rely upon accounting data that may or may not be useful.
Question:
Why would a firm have a negative ROE? Should investors buy stocks that have negative ROEs? What do you see as an alternative measure of how a firm benefits its shareholders?
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
15th edition
130563229X, 978-1305632301, 1305632303, 978-0357685877, 978-1305886902, 1305886909, 978-1305632295
