Share
Explore BrainMass

ROE/ROC/IRR

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
Return on Equity Definition
Keep Your Eye on the ROE

IRR Example

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 on Equity can be defined as net income as a percentage of total shareholder's equity earned by a company. It basically tells us that how much income profit a company earned in comparison to the total shareholder's equity invested in the company. It portrays that how efficiently the company is utilizing shareholder's investment in the organization.

The advantage of ROE is its convenience and easy calculation. However, ROE can be artificially inflated. ROE is very sensitive to leverage as ROE can look attractive with increased use of leverage.

Internal rate of ...

Solution Summary

Return on Equity vs. Return on Capital
Return on Equity Definition
Keep Your Eye on the ROE

$2.19