【1998 cadillac deville d'elegance】A Note On Black Knight, Inc.’s (NYSE:BKI) ROE and Debt To Equity

2024-09-29 08:14:19 分类：Entertainment 阅读(4562)

One of the best investments we can make is 1998 cadillac deville d'elegancein our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. We’ll use ROE to examine Black Knight, Inc. (

NYSE:BKI

), by way of a worked example.

Over the last twelve months

Black Knight has recorded a ROE of 16%

. Another way to think of that is that for every $1 worth of equity in the company, it was able to earn $0.16.

Check out our latest analysis for Black Knight

How Do You Calculate Return On Equity?

The

formula for ROE

is:

Return on Equity = Net Profit ÷ Shareholders’ Equity

Or for Black Knight:

16% = 272.9 ÷ US$1.7b (Based on the trailing twelve months to September 2018.)

Most know that net profit is the total earnings after all expenses, but the concept of shareholders’ equity is a little more complicated. It is all earnings retained by the company, plus any capital paid in by shareholders. You can calculate shareholders’ equity by subtracting the company’s total liabilities from its total assets.

What Does ROE Signify?

ROE measures a company’s profitability against the profit it retains, and any outside investments. The ‘return’ is the yearly profit. The higher the ROE, the more profit the company is making. So, all else equal,

investors should like a high ROE

. Clearly, then, one can use ROE to compare different companies.

Does Black Knight Have A Good ROE?

Arguably the easiest way to assess company’s ROE is to compare it with the average in its industry. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. If you look at the image below, you can see Black Knight has a similar ROE to the average in the IT industry classification (15%).

NYSE:BKI Last Perf January 2nd 19

That’s neither particularly good, nor bad. ROE can give us a view about company quality, but many investors also look to other factors, such as whether there are insiders buying shares. If you like to buy stocks alongside management, then you might just love this

free

list of companies. (Hint: insiders have been buying them).

The Importance Of Debt To Return On Equity

Most companies need money — from somewhere — to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt used for growth will improve returns, but won’t affect the total equity. That will make the ROE look better than if no debt was used.

Story continues

Combining Black Knight’s Debt And Its 16% Return On Equity

Black Knight has a debt to equity ratio of 0.80, which is far from excessive. Its very respectable ROE, combined with only modest debt, suggests the business is in good shape. Judicious use of debt to improve returns can certainly be a good thing, although it does elevate risk slightly and reduce future optionality.

But It’s Just One Metric

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In my book the highest quality companies have high return on equity, despite low debt. If two companies have the same ROE, then I would generally prefer the one with less debt.

Having said that, while ROE is a useful indicator of business quality, you’ll have to look at a whole range of factors to determine the right price to buy a stock. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. So you might want to check this FREE

visualization of analyst forecasts for the company

.

But note:

Black Knight may not be the best stock to buy

. So take a peek at this

free

list of interesting companies with high ROE and low debt.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

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