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4 Stocks With High Return On Equity (ROE) In BSE 500
Portfolios can benefit greatly from investing in companies that generate profits more effectively than their competitors. Return on equity (ROE) can assist investors to distinguish between profit-generating and profit-consuming businesses.
However, ROE does not always reveal the complete picture of a company and must be utilized with caution.
Return on Equity (ROE)
Return on Equity (ROE) is a metric that measures how much a company's shareholders earned in exchange for their investment. It demonstrates how successfully the corporation has managed the money of its owners. The return on investment (ROI) is computed by dividing net profit by net worth. If the company's return on investment (ROI) is low, it means that the capital spent by the shareholders was not used efficiently.
In general, a company with a return on equity (ROE) of more than 20% is considered an excellent investment. However, despite having a high return on investment (ROI), a few equities have given negative returns throughout the same time span. It's important to realize that RoE isn't the sole indicator to consider for investors.
Among the BSE 500 equities, the four stocks with the highest ROE in 2021 are listed below.
Tata Communications
Tata Communications Ltd., founded in 1986, is a Telecommunications-focused Mid Cap business with a market capitalization of Rs 39,563.70 crore. In the fiscal year ended March 31, 2021, the company generated a return on equity of 1083.17 percent, surpassing its five-year average of 266.11 percent.
The stock returned 148.14 percent over three years, compared to 41.11 percent for the Nifty 100. Over a three-year period, the stock returned 148.14 percent, compared to 26.23 percent for the S&P BSE Telecom index.
In the last 5 years, the stock has risen 174.92 percent to Rs1,422.00 on August 30. The company's RoE in FY19: 0percent, FY20: 0 percent, and FY21: 1083.17 percent.
Adani Power
Adani Power Limited is the power division of the Adani Group, an Indian conglomerate headquartered in Ahmedabad, Gujarat. It is a privately owned thermal power plant with a capacity of 12,450 megawatts (MW). It also runs a 40-megawatt solar project in Naliya, Bitta, Kutch, Gujarat.
In the fiscal year ending March 31, 2021, the company delivered an ROE of 255.22 percent, surpassing its five-year average of -522.67 percent. The stock returned 159.51 percent over three years, compared to 41.11 percent for the Nifty 100 index. Over a three-year period, the stock returned 159.51 percent, compared to 34.45 percent for the S&P BSE Power index.
In the last 5 years, the stock has risen 245 percent to Rs 93.85 on August 30. The company's RoE in FY19: 0 percent, FY20: 0 percent, and FY21: 255.22 percent.
Nestle India
Nestlé India Limited is a wholly-owned subsidiary of the Swiss multinational Nestlé. Gurgaon, Haryana, is the company's headquarters. Food, beverages, chocolate, and confectioneries are among the company's offerings.
The stock returned 76.83 percent over three years, compared to 41.11 percent for the Nifty 100. Over a three-year period, the stock returned 76.83 percent, while the Nifty FMCG provided investors a 19.7 percent return.
In the last 5 years, the stock has risen 206.48 percent to Rs 19,736 on August 30. The company's RoE in FY19: 43.74 percent, FY20: 102.58 percent, and FY21: 103.12 percent.
Colgate-Palmolive
Colgate-Palmolive, founded in 1937, is a Large Cap firm in the FMCG sector with a market capitalization of Rs 45,029.94 crore.
In the fiscal year ended March 31, 2021, the company had an ROE of 88.8%, exceeding its five-year average of 55.36 percent. The stock returned 43.53 percent over three years, compared to 41.11 percent for the Nifty 100 index. Over a three-year period, the stock returned 43.53 percent, while the Nifty FMCG provided investors a 19.7 percent gain.
In the last 5 years, the stock has risen 75.99 percent to Rs 1,675 on August 30. The company's RoE in FY19: 53.6 percent, FY20: 51.21 percent, and FY21: 88.8 percent.
Importance of ROE in stock investment
Return on equity is an important metric for determining a company's profitability. Higher values indicate that the company is producing income from new investments efficiently. Before making any purchasing decisions, as an investor, you must learn to evaluate and compare the ROE of several companies. It's also a good idea to look at how ROE has changed over time for the companies you're interested in.
Companies with a high ROE know how to make the most of their shareholders' money. It is a terrific idea to invest in a firm that can consistently produce high ROE over time because the profits will only continue to grow owing to smart money management.
Companies with a high return on investment (ROI) do an excellent job of maintaining earnings.
A word of warning to all investors: don't base your investment decisions only on ROE. Because it can be manipulated artificially by management, it is not the most dependable of parameters.
The ROE formula is used by investors to determine return on equity, which provides a useful estimate of a company's profit generation.
ROE= Net Income/ shareholder's equity
The term "return on equity," or "ROE," is often used by investors and analysts. The return on investment (ROI) formula aids in obtaining a clear picture of financial and organisational profitability. Furthermore, it is simple to compute using the financial accounts of the organisation.
