Should Eagers Automotive Limited's (ASX:APE) ROE Impress You?

January 23, 2025 05:20 PM AEDT | By Team Kalkine Media

Should Eagers Automotive Limited's (ASX:APE) ROE Impress You?

Understanding ROE Calculation

ROE is calculated with the formula:

Return on Equity = Net Profit ÷ Shareholders' Equity

Based on Eagers Automotive’s recent data up to June 2024, the calculation stands at 21%, which indicates that for each A$1 of shareholder capital, the company generated A$0.21 in profit.

Assessing ROE in the Industry Context

Eagers Automotive has a commendable ROE in comparison to the Specialty Retail industry average of 17%. While this reflects strong operational efficiency, it is crucial to note that variations exist within industry classifications, making ROE comparisons a rough check rather than a conclusive measure.

The Role of Debt in ROE

Debt can often inflate ROE figures as it helps enhance returns without impacting shareholders' equity. Eagers Automotive operates with a notable debt to equity ratio of 1.80. This signifies a reliance on borrowed funds to leverage its returns. While the current ROE figure is respectable, the elevated debt level introduces additional risks to the company’s financial stability.

Conclusion: More Than Just ROE

While a high ROE like Eagers Automotive's is generally a positive sign, investors are advised to consider it alongside other factors such as debt levels, growth prospects, and market valuation. Evaluating these elements together provides a more rounded view of a company’s financial health. Those interested in a broader investment perspective might explore a list of companies boasting high ROE and minimal debt.

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.