U.S. Markets closed

Should Stockland (ASX:SGP) Focus On Improving This Fundamental Metric?

Simply Wall St


Our data shows Stockland has a return on equity of 3.2% for the last year. That means that for every A$1 worth of shareholders' equity, it generated A$0.032 in profit.

See our latest analysis for Stockland

How Do I Calculate ROE?

The formula for return on equity is:

Return on Equity = Net Profit ÷ Shareholders' Equity

Or for Stockland:

3.2% = AU$311m ÷ AU$9.8b (Based on the trailing twelve months to June 2019.)


What Does Return On Equity Mean?

Return on Equity measures a company's profitability against the profit it has kept for the business (plus any capital injections). The 'return' is the yearly profit. That means that the higher the ROE, the more profitable the company is. So, all else equal, investors should like a high ROE. That means ROE can be used to compare two businesses.

Does Stockland Have A Good Return On Equity?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. As is clear from the image below, Stockland has a lower ROE than the average (9.7%) in the REITs industry.

ASX:SGP Past Revenue and Net Income, September 3rd 2019


How Does Debt Impact ROE?


Combining Stockland's Debt And Its 3.2% Return On Equity

While Stockland does have some debt, with debt to equity of just 0.50, we wouldn't say debt is excessive. Its ROE is rather low, and it does use some debt, albeit not much. That's not great to see. Careful use of debt to boost returns is often very good for shareholders. However, it could reduce the company's ability to take advantage of future opportunities.

But It's Just One Metric




