Return on Equity

Return on Equity is a number I like to take a gander at before hitting the “buy” button. It provides some insight as to how well the company is using the investments that people like me (a shareholder) make.

Return on equity is the net income divided by shareholder's equity. Net income is the money that the company made over a period of time and shareholder's equity is the amount of money that shareholders (i.e. me) have invested in the company at that period of time.

A return on equity of greater than 10% is where I like to be investing. When it comes to return on equity bigger is always better. It means that the company is making more money on every dollar that investors have in the company.

To find the return on equity for a given compnay:

1.) Go to: http://money.ca.msn.com/investing/
2.) Enter the ticker symbol of your chosen company in the “Name or Symbol” field (note “.to” is not required because Canada is listed as the market already)
3.) Click on Highlights under the Financial Results header in the left tool bar
4.) Revenue per share is listed fourth from the top in the table displayed

Revenue Per Share Comparison Between 5 Big Canadian Banks

To find the revenue per share of a company, do the following

1.) Go to: http://money.ca.msn.com/investing/
2.) Enter the ticker symbol of your chosen company in the “Name or Symbol” field (note “.to” is not required because Canada is listed as the market already)
3.) Click on Highlights under the Financial Results header in the left tool bar
4.) Revenue per share is listed fifth from the bottom in the table displayed.
5.) Repeat for each of the five companies selected, and add it to the table of info:

Company
Net Profit Margin (last 12 months)
Earnings Per Share
Revenue Per Share

Royal Bank of Canada (RY)
13.60%
2.56%
20.68

Toronto-Dominion Bank (TD)
16.39%
3.49%
19.88

Bank of Nova Scotia (BNS)
25.32%
3.32%
14.23

Bank of Montreal (BMO)
16.84%
3.29%
19.28

Canadian Imperial Bank of Commerce (CM)
12.04%
2.65%
25.97

A couple of observations:
1.) RY, TD, and BMO have pretty much the same amount of business activity taking place
2.) BNS has significantly less activity taking place, while CM has significantly more
3.) BNS, with the lowest revenue per share, has the highest net proft margin
4.) CM, with the highest revenue per share, has the lowest profit margin
5.) The ranking of the bank in the revenue per share automatically places it in the opposite ranking in the net profit margin category.

What does this mean to my investment decision? Net profit margin trumps revenue per share, so the revenue per share data will be dropped from this particular comparison moving forward.