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GuruFocus has detected 2 Warning Signs with Hovnanian Enterprises Inc \$HOV.
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Hovnanian Enterprises Inc (NYSE:HOV)
ROE %
0.00% (As of Jan. 2017)

Return on equity is calculated as net income divided by its average shareholder equity. Hovnanian Enterprises Inc's annualized net income for the quarter that ended in Jan. 2017 was \$-1 Mil. Hovnanian Enterprises Inc's average shareholder equity for the quarter that ended in Jan. 2017 was \$-128 Mil. Therefore, Hovnanian Enterprises Inc's annualized return on equity (ROE) for the quarter that ended in Jan. 2017 was N/A%.

Definition

Hovnanian Enterprises Inc's annualized Return on Equity (ROE) for the fiscal year that ended in Oct. 2016 is calculated as

 ROE = Net Income (A: Oct. 2016 ) / ( (Total Equity (A: Oct. 2015 ) + Total Equity (A: Oct. 2016 )) / 2 ) = -2.819 / ( (-128.084 + -128.51) / 2 ) = -2.819 / -128.297 = N/A %

Hovnanian Enterprises Inc's annualized Return on Equity (ROE) for the quarter that ended in Jan. 2017 is calculated as

 ROE = Net Income (Q: Jan. 2017 ) / ( (Total Equity (Q: Oct. 2016 ) + Total Equity (Q: Jan. 2017 )) / 2 ) = -0.572 / ( (-128.51 + -128.28) / 2 ) = -0.572 / -128.395 = N/A %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

In the calculation of annual return on equity, the net income of the last fiscal year and the average total shareholder equity over the fiscal year are used. In calculating the quarterly data, the Net Income data used here is four times the quarterly (Jan. 2017) net income data. Return on Equity is displayed in the 15-year financial page.

Explanation

Return on Equity (ROE) measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable.

The factors that affect a companys Return on Equity (ROE) can be illustrated with the Du Pont Formula:

 Return on Equity (ROE) (Q: Jan. 2017 ) = Net Income / Average Shareholder Equity = -0.572 / -128.395 = (Net Income / Revenue) * (Revenue / Average Total Assets) * (Average Total Assets / Average Equity) = (-0.572 / 2208.036) * (2208.036 / 2262.368) * (2262.368 / -128.395) = Net Profit Margin * Asset Turnover * Leverage Ratio = -0.03 % * 0.976 * N/A = Return on Assets * Leverage Ratio = -0.03 % * N/A = N/A %

Note: The Net Income data used here is four times the quarterly (Jan. 2017) net income data. The Revenue data used here is four times the quarterly (Jan. 2017) revenue data.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

With this breakdown, it is clear that if a company grows its Net Profit Margin, its Asset Turnover, or its Leverage, it can grow its return on equity.

Be Aware

The net income used here is the net income to common shareholders.

Because a company can increase its return on equity by having more financial leverage, it is important to watch the leverage ratio when investing in high ROE companies. Like ROA, ROE is calculated with only 12 months data. Fluctuations in companys earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.

Asset light businesses require very few assets to generate very high earnings. Their ROEs can be extremely high.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Hovnanian Enterprises Inc Annual Data

 Oct07 Oct08 Oct09 Oct10 Oct11 Oct12 Oct13 Oct14 Oct15 Oct16 ROE -39.08 -136.14 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Hovnanian Enterprises Inc Quarterly Data

 Oct14 Jan15 Apr15 Jul15 Oct15 Jan16 Apr16 Jul16 Oct16 Jan17 ROE 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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