True Return on Equity

True Return on Equity is Return on Equity without the effect of financial engineering. Some companies do a lot of stock buybacks to make it appear that their Return on Shareholders' Equity is significantly high. Stock buybacks increase the value of Treasury Stock. In the Balance Sheet, Treasury Stock is a negative number and is deducted from Total Equity. When a company does a lot of stock buybacks, the negative value of Treasury Stock increases and the value of Total Equity decreases.

Return on Equity is Net Income divided by Total Equity. If the value of Total Equity is small because of stock buybacks, the Return on Equity increases to an abnormally high number.

Convert Treasury Stock to a positive number and add it back to Total Equity to calculate the True Return on Equity.

 

Equations

 

If the company has Treasury Stock:

 

Check if True Return on Equity is greater than 20%:

True Return on Shareholders' Equity

My Financial Analysis of Stocks

  • Sold All of L Brands (LB) and Park Hotels and Resorts (PK) An article in CNBC scared us. L Brands (LB) could be a broken company.https://www.cnbc.com/2018/05/24/victorias-secret-might-be-broken-as-l-brands-slashes ...
    Posted May 28, 2018, 10:35 PM by Intelligent Investor
  • We Sold All of Our Shares in PayPal, We Saw Something Else We Liked Better We dumped Paypal (PYPL). The P/E Ratio is currently at 66 which is very high. The slowdown in earnings and revenue does not justify a P/E Ratio that ...
    Posted Feb 3, 2018, 8:18 AM by Intelligent Investor
  • U.S. Bank's (USB) Return on Equity is Greater than Wells Fargo (WFC) We just realized that U.S. Bank's (USB) Return on Equity is the highest out of all the major banks. It is greater than Wells Fargo (WFC), J.P ...
    Posted Feb 3, 2018, 8:20 AM by Intelligent Investor
  • My Research 2017 View Analysis: My Research 2017
    Posted Jan 15, 2018, 4:12 PM by Intelligent Investor
  • Looks Like Capitulation in Viacom (VIAB) Capitulation is when large institutional investors give up on a stock and sell all of their holdings in that stock. Capitulation is a sign of a bottom for a stock ...
    Posted Nov 17, 2017, 10:38 AM by Intelligent Investor
  • IBM's Fortunes Finally Turns Around Today Warren Buffett purchased IBM shares in the year 2012 worth billions of dollars. Yet the stock has pummeled and has been pounded downwards for the past 5 years. The company ...
    Posted Oct 20, 2017, 1:58 PM by Intelligent Investor
  • Exchanged AT&T (T) for Time Warner (TWX) and Dumped Hilton Worldwide (HLT) I exchanged AT&T (T) for Time Warner (TWX). Their merger currently gives TWX a 6% premium. AT&T is offering $107/share for TWX. Time Warner is currently priced ...
    Posted Sep 1, 2017, 4:36 PM by Intelligent Investor
  • My Stock Holdings 2017 View Analysis: My Stock Holdings 2017Hilton Worldwide Holdings (HLT) split into 3 companies. So we now own the following 3 Hilton companies:1) Hilton Worldwide Holdings (HLT)2) Hilton ...
    Posted Aug 28, 2017, 6:46 PM by Intelligent Investor
  • Repurchased Apple After Warren Buffett Confirms He Purchased it As a rule-of-thumb, if an investment has a Return on Equity (ROE) of greater than 30%, it means the company has a Durable Competitive Advantage. Apple's Return ...
    Posted Jun 5, 2017, 12:35 PM by Intelligent Investor
  • Purchased Hilton Hotels in Anticipation of a 3 for 1 Stock Spin-Off Last December I purchased Hilton Hotels in anticipation of a 3 for 1 stock spin-off. In other words, Hilton Hotels will be splitting into 3 independent companies. The most ...
    Posted Mar 1, 2017, 6:12 PM by Intelligent Investor
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