ROE MISLEADS
ROE stands for return on equity. It is a good factor to judge any company for our investment in it. Whenever we see more than 15-20% ROE of any company, we decide to invest in it. Good but wait, do you know, dividends (rewards given to investors when a company earns profit) have direct effect on ROE. If dividends given increases, ROE increases. If a company gives a good percentage of dividend to people, then it is not a good sign to invest in it as ROE is increasing falsely. Also, if ROE is increased by increasing net profit of a company (ROE is directly proportional to net profit of a company) , then it is absolutely good to invest in that company.
At last, I want to summarize this fact that whenever you are seeing ROE of a company and if it is on a great percentage, then, please see that which one of the two above mentioned factors helped it to become great?
Thank you, take care.
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