Every entrepreneur and business owners have only one dream for their company that is, success reaching new heights. This type of success is dreamt from the moment one starts to plan the idea of starting a business. One of the most important parts of this financial success of a company, as in, financial attributes which show the success of a company.
Financial characteristics are those end points which provides final verdict on the success of a company. Earnings and ROE are some timeless attributes which indicates towards the overall success of a company apart from other management factors like market leadership, USP etc.
Before getting ready to invest in a company’s stock, earnings of the company gets a special look at. Without this the current and authentic financial value of a company cannot be established except the book value noted already. In case of stock boom shown Internet, current earnings of a company gets overlooked by the investors and they buy stocks of the company on the prospect of earnings expected to be received by the company. The three most imperative parts of an earning are:
• Growth: Growth of Earning is depicted in percentage (%) form created over period from year to year, quarter to quarter or month to month. The basic intention behind this is to show the increase in current earning from the previous one. This helps to establish a pattern through which future earnings can be predicted by going through the history of earnings and also the chances of the company having earnings in the future.
• Stability: This depicts the stable growth of the earnings and whether the increase in earnings is stable or erratic. Stable earning generally only occurs when the pattern depicting growth of the earning becomes more and more predictable. At times earnings and revenue growth occurs head to head and this phenomenon is referred to as top-line growth. Another reason for growth in earnings is the cut-off of expenses. While comparing one company to another, it becomes imperative that the area responsible for stability is also looked through.
This basically checks the efficiency of the management of the company to turn the shareholders invested money into profit. The formula to calculate Return on Equity is
ROE = Net Income / Shareholder’s Equity
ROE can be easily used to compare with whole market and peers related to the sector and the industry. When there is no earning the ROE of the company automatically become negative and to evaluate the consistency of the ROE, having historical ROE data is imperative. This pattern helps to assure shareholders of the possible growth and profit of the company.
As these two attributes are imperative to know the sound growth and success of the company, do make sure that you keep on evaluating the pattern to know the consistency behind both ROE and Earnings. However, these attributes will be in vain if you do not compare your findings with the base set for both ROE and Earnings.
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