Return on Investment / Return on Equity
Inhaltsübersicht
1. Return on Investment
In the financial world, yield is the effective interest rate, expressed as a percentage of a reference value, that an investor achieves with an investment product within one year.
2. Return on Equity
Return on equity (ROE) is a key figure that indicates how much profit a company generates with its equity. It is expressed as a percentage and is an important indicator for investors and managers, as it makes it possible to compare the profitability of companies with one another.
The formula for calculating the return on equity is as follows
Return on equity = (profit after tax / equity) * 100 %
Profit after tax is the profit remaining to the company after deducting all costs and taxes.
Equity is the company's assets that belong to the owners. It is made up of the share capital, fixed assets, reserves and profits from previous years.
Example:
A company generates a profit after tax of CHF 100'000 and has equity of CHF 500'000. The return on equity is then:
Return on equity = (100'000 / 500'000) * 100 % = 20 %
You could also say that the company has made a profit of 20 centimes for every franc of equity. A high return on equity is usually a sign of a good economic situation for the company.
Which return on equity is considered high or low depends on the respective company's industry. This is why the key figures of companies in the same sector are used for the comparison.
When investing in business loans at LEND, our investors can find the return on equity figure in the detailed project presentation.