One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. By way of learning-by-doing, we'll look at ROE to gain a better understanding of One Liberty Properties, Inc. (NYSE:OLP).
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for One Liberty Properties
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) Shareholders' Equity
So, based on the above formula, the ROE for One Liberty Properties is:
6.4% = US$19m US$292m (Based on the trailing twelve months to December 2019).
The 'return' refers to a company's earnings over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.06 in profit.
Arguably the easiest way to assess company's ROE is to compare it with the average in its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. The image below shows that One Liberty Properties has an ROE that is roughly in line with the REITs industry average (5.8%).
NYSE:OLP Past Revenue and Net Income April 23rd 2020
So while the ROE is not exceptional, at least its acceptable. Although the ROE is similar to the industry, we should still perform further checks to see if the company's ROE is being boosted by high debt levels. If true, then it is more an indication of risk than the potential. To know the 5 risks we have identified for One Liberty Properties visit our risks dashboard for free.
Most companies need money -- from somewhere -- to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.
One Liberty Properties clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.54. Its ROE is quite low, even with the use of significant debt; that's not a good result, in our opinion. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it.
Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. Companies that can achieve high returns on equity without too much debt are generally of good quality. All else being equal, a higher ROE is better.
But when a business is high quality, the market often bids it up to a price that reflects this. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to check this FREE visualization of analyst forecasts for the company.
Story continues
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
Read the original post:
Is One Liberty Properties, Inc.'s (NYSE:OLP) ROE Of 6.4% Impressive? - Yahoo Finance
- Information Overload - November 8th, 2009 [November 8th, 2009]
- Same-Sex Marriage Gains - Iowa, DC and Vermont - November 8th, 2009 [November 8th, 2009]
- Obama and the Muslim World - November 8th, 2009 [November 8th, 2009]
- Nordyke - Incorporation of the Second Amendment to Apply to the States - November 8th, 2009 [November 8th, 2009]
- Obama's First 100 Days - Reclaiming the Constitution* - November 8th, 2009 [November 8th, 2009]
- Education Reform - November 8th, 2009 [November 8th, 2009]
- Legalize (and Tax) Vice - November 8th, 2009 [November 8th, 2009]
- Obama World vs. Cheney World - November 8th, 2009 [November 8th, 2009]
- National Rifle Association v. Chicago (McDonald v. Chicago) Oral Arguments* - November 8th, 2009 [November 8th, 2009]
- Reconciling Liberty and Progressive Government - November 8th, 2009 [November 8th, 2009]
- Obama in the Middle East - A Respectful, Rational Voice - November 8th, 2009 [November 8th, 2009]
- Second Amendment Incorporation Update - Seventh Circuit Decision - November 8th, 2009 [November 8th, 2009]
- Strong versus Weak Judging - November 8th, 2009 [November 8th, 2009]
- Drawing the Line on the Obama Administration's National Security Practices - November 8th, 2009 [November 8th, 2009]
- Supreme Court Amicus Brief in McDonald v. Chicago - November 8th, 2009 [November 8th, 2009]
- McDonald v. Chicago Amicus Brief - Volokh Conspiracy Link - November 8th, 2009 [November 8th, 2009]
- Healthcare Reform - Voices of Reason from Senators Wyden & Bennett - November 8th, 2009 [November 8th, 2009]
- Time to Legalize Drugs - Sensible WaPo Article - November 8th, 2009 [November 8th, 2009]
- Article in William & Mary Bill of Rights Journal: Rescuing the Fourteenth Amendment Privileges or Immunities Clause - November 8th, 2009 [November 8th, 2009]
- Just Do It - Obama Needs Backbone for Meaningful Healthcare Reform, a la FDR - November 8th, 2009 [November 8th, 2009]
- Nordyke v. King Rehearing - November 8th, 2009 [November 8th, 2009]
- Huge News - Supreme Court Grants Certiorari in McDonald v. Chicago re: Privileges or Immunities - November 8th, 2009 [November 8th, 2009]
- Obama Needs to Take Stands on Principle - November 8th, 2009 [November 8th, 2009]
- Kudos to Harry Reid for Including Public Option in Proposed Health Care Bill - November 8th, 2009 [November 8th, 2009]
- Free Radicals - Individual Efforts Can Change the World - November 8th, 2009 [November 8th, 2009]
- - November 8th, 2009 [November 8th, 2009]
- Destroy the Filibuster - December 13th, 2009 [December 13th, 2009]
- McDonald v. Chicago - Petitioner's Brief - December 13th, 2009 [December 13th, 2009]
- Something on Which We Can All Agree - Less Government in Criminal Justice - December 13th, 2009 [December 13th, 2009]
- Obama Approach to Governing; Afghanistan Policy - December 13th, 2009 [December 13th, 2009]
- McDonald v. Chicago - Law Professors' Amicus Brief - December 15th, 2009 [December 15th, 2009]
- Senate Passes Health Care Insurance Reform - Reflections - December 25th, 2009 [December 25th, 2009]
- "Radicals In Their Own TIme" - Introduction & Selected Excerpts - January 1st, 2010 [January 1st, 2010]
- Terrific WaPo Farewell Column by Ellen Goodman - January 2nd, 2010 [January 2nd, 2010]
- Same-Sex Marriage Case in California - January 20th, 2010 [January 20th, 2010]
- Health Care; Corporate Speech Case - January 23rd, 2010 [January 23rd, 2010]
- McDonald v. Chicago - Essay in Cardozo Law Review de novo Online Journal - January 29th, 2010 [January 29th, 2010]
- Another Response to Citizens United: Remove Supreme Court Appellate Jurisdiction - February 11th, 2010 [February 11th, 2010]
- Olympics Idealism - March 1st, 2010 [March 1st, 2010]
- Framers Believed in Virtuous (ie, Humane) Government - March 21st, 2010 [March 21st, 2010]
- McDonald v. Chicago - Yesterday's Oral Argument - March 22nd, 2010 [March 22nd, 2010]
- Radicals in Their Own Time: Four Hundred Years of Struggle for Liberty and Equal Justice in America - May 21st, 2010 [May 21st, 2010]
- McDonald v. Chicago decision - October 11th, 2010 [October 11th, 2010]
- OpEd on McDonald v Chicago Case - June/July 2010 - October 11th, 2010 [October 11th, 2010]
- New Blog Format - October 11th, 2010 [October 11th, 2010]
- New Book - Radicals in Their Own Time - February 14th, 2011 [February 14th, 2011]
- Liberty Property Trust Hosts First Quarter 2012 Results Conference Call - March 31st, 2012 [March 31st, 2012]
- Liberty Property Trust Announces First Quarter 2012 Results - April 25th, 2012 [April 25th, 2012]
- Liberty Energy Announces Creation of Advisory Board and Appointment of Its First Member - April 25th, 2012 [April 25th, 2012]
- Liberty Tire Recycling, Keep Atlanta Beautiful and City of Atlanta Tire Commission Join Forces for Large-Scale Tire ... - April 25th, 2012 [April 25th, 2012]
- Liberty Bowl set for afternoon kick New Year's Eve - April 25th, 2012 [April 25th, 2012]
- Liberty Bowl Announces Date and Time - April 25th, 2012 [April 25th, 2012]
- Liberty ship sinking remembered - April 25th, 2012 [April 25th, 2012]
- Liberty Union searching for girls basketball coach - April 25th, 2012 [April 25th, 2012]
- How to Do a Liberty - Video - April 30th, 2012 [April 30th, 2012]
- Review: The "Liberty I" Ultra Compact Compound Bow vs. "Razor Edge" and "Slingbow" - Video - April 30th, 2012 [April 30th, 2012]
- Heavy Rain in Liberty City: Episode 1 (Grand Theft Auto IV Machinima) - Video - April 30th, 2012 [April 30th, 2012]
- Jordan Page "Liberty" (Acoustic Version) - Video - April 30th, 2012 [April 30th, 2012]
- StarCraft II: Wings of Liberty - Cinematic Trailer - Video - April 30th, 2012 [April 30th, 2012]
- China 9 Liberty 37 - Video - April 30th, 2012 [April 30th, 2012]
- Liberty`s Kids: #05 "Midnight Ride" (1/2) - Video - April 30th, 2012 [April 30th, 2012]
- Madness - The Liberty of Norton Folgate Live - Video - April 30th, 2012 [April 30th, 2012]
- I Pledge to Join Young Americans for Liberty - Video - April 30th, 2012 [April 30th, 2012]
- Steve Vai - Liberty - Video - April 30th, 2012 [April 30th, 2012]
- North Liberty fire chief: Email blasting staff was meant to motivate - May 4th, 2012 [May 4th, 2012]
- FCC dismisses Liberty Media request for control of SiriusXM - May 5th, 2012 [May 5th, 2012]
- Liberty FCC Request to Control Sirius XM Radio Rejected - May 5th, 2012 [May 5th, 2012]
- FCC rejects Liberty Media bid for Sirius XM control - May 7th, 2012 [May 7th, 2012]
- Liberty Rocket Targets 2015 - May 10th, 2012 [May 10th, 2012]
- Liberty boosts SiriusXM stake above 45% - May 10th, 2012 [May 10th, 2012]
- One Liberty Properties, Inc. Reports First Quarter 2012 Results - May 10th, 2012 [May 10th, 2012]
- Liberty to boost stake in Sirius XM to 45 pct - May 10th, 2012 [May 10th, 2012]
- ATK Announces Complete Liberty System to Provide Commercial Crew Access - May 10th, 2012 [May 10th, 2012]
- Penn Liberty Wealth Advisors Expands - May 10th, 2012 [May 10th, 2012]
- Romney Woos Evangelicals at Liberty University - May 13th, 2012 [May 13th, 2012]
- Liberty opener moved to MSG due to hockey game - May 13th, 2012 [May 13th, 2012]
- Romney Defends Marriage and Faith in Liberty University Speech - May 13th, 2012 [May 13th, 2012]
- Romney Speaks At Anti-Gay Liberty University Alongside Baptist Billionaire - May 13th, 2012 [May 13th, 2012]
- Liberty Center girls, Archbold boys reign - May 13th, 2012 [May 13th, 2012]
- Romney Courts Christian Conservatives at Liberty U - May 13th, 2012 [May 13th, 2012]