Uncovering a company’s earnings power

Return on equity (ROE) plays a vital role within Clime's investing methodology and represents a company’s earnings power. It’s the amount of profit a company generates relative to the amount of shareholders’ capital added to the business via equity raisings and retained earnings. Companies with higher returns on equity are worth more, all else equal, especially if they have higher reinvestment rates. Du Pont analysis is a simple, yet a very useful way to uncover the drivers of a company’s ROE, and today, we walk you through the basics of the Du Pont analysis and compare three Australian listed companies - ARB Corp, Woolworths and Qantas as a case study. (VIEW LINK)