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Hospira Inc (NYSE:HSP)
Return on Equity
16.46% (As of Jun. 2015)

Return on equity is calculated as net income divided by its average shareholder equity. Hospira Inc's annualized net income for the quarter that ended in Jun. 2015 was \$580 Mil. Hospira Inc's average shareholder equity for the quarter that ended in Jun. 2015 was \$3,525 Mil. Therefore, Hospira Inc's annualized return on equity (ROE) for the quarter that ended in Jun. 2015 was 16.46%.

HSP' s Return on Equity Range Over the Past 10 Years
Min: -0.31   Max: 20.39
Current: 12.22

-0.31
20.39

During the past 13 years, Hospira Inc's highest Return on Equity (ROE) was 20.39%. The lowest was -0.31%. And the median was 11.44%.

HSP's Return on Equity is ranked higher than
66% of the 715 Companies
in the Global Drug Manufacturers - Specialty & Generic industry.

( Industry Median: 7.30 vs. HSP: 12.22 )

Definition

Hospira Inc's annualized Return on Equity (ROE) for the fiscal year that ended in Dec. 2014 is calculated as

 ROE = Net Income (A: Dec. 2014 ) / ( (Total Equity (A: Dec. 2013 ) + Total Equity (A: Dec. 2014 )) / 2 ) = 333.2 / ( (2961.9 + 3336.6) / 2 ) = 333.2 / 3149.25 = 10.58 %

Hospira Inc's annualized Return on Equity (ROE) for the quarter that ended in Jun. 2015 is calculated as

 ROE = Net Income (Q: Jun. 2015 ) / ( (Total Equity (Q: Mar. 2015 ) + Total Equity (Q: Jun. 2015 )) / 2 ) = 580.4 / ( (3436.6 + 3613.6) / 2 ) = 580.4 / 3525.1 = 16.46 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own 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 (Jun. 2015) net income data. Return on Equity is displayed in the 10-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: Jun. 2015 ) = Net Income / Average Shareholder Equity = 580.4 / 3525.1 = (Net Income / Revenue) * (Revenue / Average Total Assets) * (Average Total Assets / Average Equity) = (580.4 / 4734.4) * (4734.4 / 6666.7) * (6666.7 / 3525.1) = Net Profit Margin * Asset Turnover * Leverage Ratio = 12.26 % * 0.7102 * 1.8912 = Return on Assets * Leverage Ratio = 8.71 % * 1.8912 = 16.46 %

Note: The Net Income data used here is four times the quarterly (Jun. 2015) net income data. The Revenue data used here is four times the quarterly (Jun. 2015) revenue data.

* All numbers are in millions except for per share data and ratio. All numbers are in their own 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 own currency.

Hospira Inc Annual Data

 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 ROE 20.39 17.68 8.81 18.22 18.36 12.30 -0.31 1.48 -0.28 10.58

Hospira Inc Quarterly Data

 Mar13 Jun13 Sep13 Dec13 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 ROE -10.17 4.48 0.26 4.56 8.97 8.94 19.22 4.28 8.93 16.46
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