Respond to the following in a minimum of 175 words and citations for full credit:
- Think about how you would present return on equity (ROE) and earnings per share (EPS) to a group of investors or senior management.
- Explain the use of ROE and EPS in evaluating the value of a company. Include how to calculate ROE and EPS.
- Why is understanding ROE and EPS important to a companyâ€™s value?
- Share an example of a company whose ROE and EPS you calculated. What do these results say about the company?
Reply to at least 2 of your classmates or your faculty member. Be constructive and professional.
3 hours ago, at 4:52 PM
If I were a research analyst preparing a presentation to a group of investors or senior management, the performance metrics would be presented in a way to illustrate how everyone meeting or exceeding the metrics set would balance what we spend on the back end versus what would be forecasted as growth on the front end. The presentation would have to show the net income in both the calculations of ROE and EPS along with how, as well as what the return on investments would look like for shareholders. Pricing standards would have to be illustrated as to the long- and short-term effect regarding that specific market and how much power there would be to have having met said performance metrics and plan would be put in place to as opposed to the current competitors. ROE is calculated as the net income divided by the average shareholders equity (starting and ending over measurement period). EPS, on the other hand, is calculated using net income and dividing it by the weighted average number of common shares issued and outstanding expressed in dollars per share. When calculating ROE for a company based on these metrics, it shows the capability of said team to generate a return for each dollar of common equity investment. EPS, however, measures the return on a per share basis. Understanding ROE and EPS is important to a companyâ€™s value because it helps highlight possible opportunities in profit, room for risk taking without harming the company in a major way, and providing a projected outcome for the future of the company that investors would not want to miss out on.
Basu, C. (2017, February 7). The Difference Between a Return on Equity and Earnings Per Share. Retrieved from https://finance.zacks.com/difference-between-retur…
Student # 2
3/21/20, 12:15 PM
Return on equity is measured on net income divided by average shareholders equity. What this represents is the measure of financial performance . Shareholders equity is the same as a companies assets minus its debts, so ROE is essentially the return on net assets. This can be considered as a measure of how well management is using its companies assets. In some cases companies can over invest or have more assets than they are earning, in which case they could sell off assets that are holding it down. Companies can compare their number to their peers to see if they are performing well in this category since a good number greatly depends on the type of company. Some companies have a great number of assets and others not as many. Earnings per share is calculated by a companies profit divided by the outstanding shares of common stock. The resulting number is an indicator of a companies profitability. EPS is a good indicator when picking stocks. This is a good way to see the value of a stock.