return on investment

CFA Level I
#1

return on investment is ROE with the Equity minus debt?

like on this website for example

http://www.thestreet.com/quote/CHL/details/company-profile.html

#2

why would debt be captured in ROE???

#3

Leverage is captured in ROE (think Dupont). But I don’t really understand this thread or what is being asked.

#4

He is asking how the third line under management effectiveness (Return on Investments = 18.6) is calculated.

It is NI / total capitalization, ie. add the book value of long term debt to the denominator of ROE (equity). If CHL had preferred shares, you’d have to add those too.

So, to answer your question, return on investment is ROE with equity plus LT-debt plus preferred equity.

#5

Thanks orang3eph for clarifying that. I appreciate it.

#6

Am I understanding this correctly,

ROI

Net Income / Equity + debt

ROA

Net Income / Equity + debt + Any other Liabilities like payables and pension

#7

It would be easier to just use total assets for Return on Assets, wouldn’t it?