关于 ROE

之前对ROE有点疑问，于是朋友给了我一些例子参考。

Let's say I open a store:

Case 1:
My own money = RM100
Borrow money = RM100
Asset = RM200
Liability = RM100

This year earning = RM50
ROE = RM50 / (RM200-RM100) = 50%
NTA = RM150 (growth 50% from RM100 to RM150) 

Case 2:
My own money = RM200
Asset = RM200
Liability = 0

This year earning = RM50
ROE = RM50 / (RM200-RM0) = 25%
NTA = RM250 (growth 25% from RM200 to RM250)

Conclusion:
ROE is measuring how well a company leverage/use it's assets/money to get profit. And theoratically, ROE is related to it's share price rising. If ROE is 30%, the share price will up around 30%; but due to unpredictable share market, maybe it will make up to 50% increment sometimes. However, be careful with high ROE company, sometimes they borrow money to get high ROE, and they are very easily to go bankrupt.

Case 3:
My own money = RM20
Borrow money = RM180
Asset = RM200
Liability = RM180

This year earning = RM20
ROE = RM20 / (RM200-RM180) = 100%

High ROE　is due to high liabilitiy, if Case 3 company loss RM20, it will go bankrupt.