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

  • Stocks That We Bought and Sold for the Past Year to Date Sold John Deere (DE), it is a cyclical business and the trade war the U.S. has with China isn't making things any better. Berkshire Hathaway also sold their ...
    Posted Jul 27, 2019, 12:04 PM by Intelligent Investor
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    Posted Aug 28, 2018, 1:32 PM by Intelligent Investor
  • Sold All of L Brands (LB) and Park Hotels and Resorts (PK) An article in CNBC scared us. The parent company of Victoria Secret, L Brands (LB) could be a broken company.https://www.cnbc.com/2018/05/24/victorias-secret-might ...
    Posted Jul 26, 2018, 3:41 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 Aug 2, 2019, 4:10 PM 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 Aug 2, 2019, 4:09 PM by Intelligent Investor
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