Q: In the context of Return on Equity (ROE), what is the ideal ROE? I am asking because, when we examine company profiles, we can see significant differences in companies’ ROE. For example, here are the figures for: RY-CA 14%, DOL-CA 104%, and HD-US 405%. Why is there such a disparity? Thank you
5i Research Answer:
While the ideal ROE range differs from industry to industry (for example, the financial sector typically has strong balance sheets and equity balances, thus the ROE is quite important), in general, we like to see ROEs around 15% or more.
DOL and HD have very high ROEs due to their share buyback programs. These buybacks reduce their overall equity balance, skewing the ratio.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in HD.