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# return on equity

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You know that when expanding and investing in projects overseas as Acme plans to, it is essential to understand such things as return on equity (ROE) and internal rate of return (IRR). Using Internet sources (you may want to start with the websites listed below) gather information on ROE and IRR. Post a two to three paragraph explanation for each of these terms and the advantages and disadvantages of using them when selecting projects to invest in overseas.

-Return on Equity vs. Return on Capital: http://invest-faq.com/articles/analy-roe-vs-roc.html
-Return on Equity Definition: http://www.fool.com/investing/beginning/return-on-equity-an-introduction.aspx
-Keep Your Eye on the ROE: http://www.investopedia.com/articles/fundamental/03/100103.asp#axzz1R3dSvfWF

-IRR Example: http://www.computerworld.com/s/article/78524/ROI_Guide_Internal_Rate_of_Return?taxonomyId=074

Select two companies from the same industry. Using the annual report information available on the company's website compute the ROE for each company.

#### Solution Preview

Return of equity is obtained by dividing net income with the total shareholder's equity and represents the return earned by the company's shareholders on their equity investments in the organization. ROE is a measure of efficiency of the organization in utilizing shareholder's equity.

ROE is very simple to calculate and easy to understand. However, one of the disadvantages of ROE is that the figure can be manipulated or inflated to misguide the shareholders of the organization. If an organization has large amount of debt, the leverage obtained from the debt can be used to inflate ROE.

Internal Rate of return is an effective tool in evaluating ...

#### Solution Summary

You know that when expanding and investing in projects overseas as Acme plans to, it is essential to understand such things as return on equity (ROE) and internal rate of return (IRR). Using Internet sources (you may want to start with the websites listed below) gather information on ROE and IRR. Post a two to three paragraph explanation for each of these terms and the advantages and disadvantages of using them when selecting projects to invest in overseas.

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