Investment insights: Return on Equity (ROE)
According to an article in Dr Wealth’s blog, there were more than 68,000 new CDP accounts opened in the past 12 months. Apparently, the number of people who now hold securities is at an all time high of 844,000 people.While it is a fact that more and more Singaporeans are interested in making money from shares, I am not so sure whether these Singaporeans are really investors or merely speculators. Given that the Wall Street is now at record peak, many existing local stockholders’ portfolio have risen in value. I reckon this must have attracted people to open trading accounts and take part in the actions as well. After all, many Singaporeans want to make money and become rich quick. But before newbie traders get carried away, it is important to build the knowledge foundation first.
Last week, one of my readers, Dexter Choo wrote in to me asking why I use Return on Equity (ROE) instead of Earning Per Share (EPS) to measure the financial health of a company. This article is written to clarify some of the strategies I use for stock analysis and hopefully readers can benefit from this sharing and went on to build their wealth.
Basically ROE reveals how much profit the management can generate with the money shareholders invested.