Netflix ROE %

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 three-step DuPont Analysis:

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.

The factors that affect a company's Return on Equity (ROE) can also be illustrated with the five-step DuPont Analysis:

Note: The net income attributable to common stockholders data used here is four times the quarterly (Sep. 2019) net income attributable to common stockholders data. The Revenue data used here is four times the quarterly (Sep. 2019) revenue data. The same rule applies to Pre-Tax Income and Operating Income.

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

Be Aware

Net income attributable to common stockholders is used.

Because a company can increase its return on equity by having more financial leverage, it is important to watch the equity multiplier 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.

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