ROE and IRR Analysis of PPG and Du Pont
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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
- 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.
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Solution Summary
The solution compromises of a 678-word essay comparing ROE and IRR of two companies (PPG and DuPont), complete with sources for further investigation.
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ROE and IRR
The Return on Equity, or ROE as it is more commonly known, is a profitability ratio that measures the amount of financial return a firm has earned as a proportion of the amount of money the firm's shareholders have invested as equity. The return is calculated by dividing the net profit of the firm by total shareholder's equity.
The ROE, as with all financial ratios, is typically only useful when used as a comparative tool. Alone, the number means little, but relative to last year's financial performance and the numbers posted by a firm's competitors, the ROE is a good indicator as to the overall performance. The ROE can be used by shareholders to determine whether a firm is earning enough profit relative to the funds they have invested (equity). This is important because if a firm isn't producing more return than another investment, the investor might be unwise to continue to invest in the form over the short term as returns to the shareholders in the long term are a function of this ratio (1).
One advantage in using the ROE with respect to foreign project ...
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