There is almost a unanimous agreement in investment community that RoE is an important indicator of health of a company, High sustainable ROE implies sustainable competitive advantages and hence investment attractiveness of the company
Sustainable is a key word here so always execute ROE analysis for at least 5 years if not 10 years to arrive at a conclusion
DuPont comes in handy to break down ROE, I will not go into details of DuPont , you can read this article to get yourselves accustomed to DuPont
You can use Tankrich Valuation Tool to do DuPont analysis in 5 mins, post analysis how do you dissect RoE ?
This will be largely dependent on how familiar you are with operations of the company and industry, We will take a case today and see if we can put together a generic framework for dissecting RoE
Friends this is going to be a long post so take out your pen, paper, food and time and lets dig in. The company that we will use as case is Ajanta Pharma
The RoE for last 5 years has been ..
Fantastic improving from 16% to 41%
The frame-work that we are going to use … Read the rest