3. Return on Equity (ROE) - The NASDAQ Dozen
The next fundamental factor in the NASDAQ Dozen is return on equity (ROE). You will find the ROE information by first clicking on the Financials link under Fundamentals in the left menu (see Figure 6) and then clicking on the Financial Ratios link at the top of the Company Financials page (see Figure 7).
Figure 6—Financials Link
ROE gives us a glimpse into how efficiently company management is producing a return for the owners of the company---based on the amount of equity in the company. To calculate ROE, you divide the average shareholders equity during the past 12 months by the net profit the company has made during those same 12 months.
How to Score Return on Equity
- Pass—Give ROE a passing score if ROE has been increasing for two consecutive years.
- Fail—Give ROE a failing score if ROE is decreasing
Looking at ROE for WMT in Figure 7, ROE should receive a passing score since it remained the same from 2009 to 2010 and increased from 2010 to 2011.
Return on Equity: PASS
Figure 7—Financial Ratios Link
All content in this article is supplied by Wade Hansen of Learning Markets. To learn more about their investor education offerings, please visit learningmarkets.com. Find more great articles from Learning Markets in our news sections.
