Author Topic: ROE is dropping  (Read 5271 times)


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ROE is dropping
« on: November 09, 2013, 07:03:42 AM »

This round (now in Y15) we went up from the middle pack to the first place. Great news of course!
However, something worries me...

Our ROE the past year was 24% (the year before: 18%) (We bought available capacity last year)
Now, the worrying this is that our predicted ROE is only 17% for the next year! This seems like a huge drop to us and we're wondering how we can overcome this... Our stock prices went up a lot (from 55 to 140..) in one year.

When I look at the balance sheet I see that the total shareholder equity went up from 250K to 320K in one year, is this a bad thing? We've bought some shares back the previous years, but they're getting really expensive now.

Following some choices we made the past years our retail outlets offered raised, a lot. With maximum production set to the branded market we still can't fulfill the projected demand (taken from the branded distribution page). Should we drop the amount of retail outlets utilized because of this/drop advertising/raise prices? Maybe that could lead to higher profit and again a higher ROE.

So in short, how normal is that our ROE is dropping this much. Is an ever-increasing shareholder equity a bad thing?
We can't fulfill the projected sales forecast (too much demand). Is this a big flashing sign to increase production even more, or should we be cautious?


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Re: ROE is dropping
« Reply #1 on: November 09, 2013, 10:44:15 AM »
No, declining RoE is actually a symptom of a mature company. It being net profit/equity. Well if you have successful years, and net profit stays the same (let's hope so..), but retained earnings rises from last year's net profit. Ultimately RoE will decline. There are a few ways to lower equity, but overall this is the fate of every mature BSG company.

Your operational problems are unrelated to this.
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