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Is Creative Peripherals and Distribution Limited's (NSE:CREATIVE) ROE Of 17% Impressive?

Simply Wall St


Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). We'll use ROE to examine Creative Peripherals and Distribution Limited (NSE:CREATIVE), by way of a worked example.

Our data shows Creative Peripherals and Distribution has a return on equity of 17% for the last year. Another way to think of that is that for every ₹1 worth of equity in the company, it was able to earn ₹0.17.

Check out our latest analysis for Creative Peripherals and Distribution

How Do I Calculate ROE?

The formula for ROE is:

Return on Equity = Net Profit ÷ Shareholders' Equity

Or for Creative Peripherals and Distribution:

17% = ₹57m ÷ ₹335m (Based on the trailing twelve months to March 2019.)

Most know that net profit is the total earnings after all expenses, but the concept of shareholders' equity is a little more complicated. It is the capital paid in by shareholders, plus any retained earnings. Shareholders' equity can be calculated by subtracting the total liabilities of the company from the total assets of the company.

What Does Return On Equity Mean?


Does Creative Peripherals and Distribution Have A Good ROE?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. As is clear from the image below, Creative Peripherals and Distribution has a better ROE than the average (9.9%) in the Electronic industry.

NSEI:CREATIVE Past Revenue and Net Income, July 16th 2019


Why You Should Consider Debt When Looking At ROE


Combining Creative Peripherals and Distribution's Debt And Its 17% Return On Equity

Creative Peripherals and Distribution does use a significant amount of debt to increase returns. It has a debt to equity ratio of 1.07. while its ROE is respectable, it is worth keeping in mind that there is usually a limit to how much debt a company can use. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time.

But It's Just One Metric

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In my book the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better.



