Return On Equity Formula

Return On Equity Formula

The return on equity formula is the most common profitability ratios used by equity shareholders to judge the effectiveness of their funds invested in a firm.

The return on equity formula is a key formula when determining how well a company can use shareholder money to grow the company. A company with a low return on equity may be using shareholders money inefficiently. We can come to the conclusion that the return on equity formula is a formula that aims to help the shareholders, not the company itself.

Net worth includes all contributions made by equity shareholders, including paid-up capital, reserves and surplus

Keep in mind that financing decisions made by management can affect RoE, for example, assume that companies A and B earn similar operating profits of $100 and have the same tax rate of 30%. Also assume that both the companies have employed capital of $1000. However, company A employs only equity and company B employs debt at 15% interest rate, and equity in the ratio of 3:7. The following table depicts the difference in RoE of both the companies based on these assumptions.

Company A B
PBIT $100 $100
Interest – $15
PBT $100 $85
Tax (30%) $30 $25.5
Net Profit $70 $59.5
Net Profit margin 70.00% 59.50%
Equity employed $1000 $700
Debt employed – $300
Return on Equity 7.00% 8.50%

In this case, even though both the companies have earned similar operating margins, company B has a higher return on equity, to the tune of 8.50%. This is due to the leverage used by company B. While B provides higher return on equity to shareholders, it is also riskier compared to A which carries no debt. Similarly, RoE is also influenced by the average cost of debt and tax rates.

Remember, the return on equity formula is often used by shareholders to determine how much money the company is making relative to the amount of shareholder equity.

Return On Capital Employed

Return On Equity Formula

Our next profitability ratio, return on capital employed, or RoCE indicates the efficiency and effectiveness of a company’s capital investments.

Return on capital employed should always be higher than the rate at which the company borrows, it should earn more than the cost of funds it applies in the business. The company may face liquidity issues if the interest costs on its debt are more than the return gained on the employed capital.

For a company that has fluctuating capital, a more suitable ratio would be return on average capital employed, which uses the average of opening and closing capital employed during a given period of time. Simply substitute total assets and current liabilities for their averages.

Below is an example of the return on capital employed formula in action:

Bobs plumbing company reported a operating profit of $ 200 000. Bob also claimed he had $150 000 in total assets and $ 60 000 in total liabilities.

Return on Capital Employed = $200 000 / $150 000 – $60 000

RoCE = 2.22

What this means, is that every dollar that bob invested in employed capital, he seen a return of $2.22. This number is higher than normal, but the example is to just show you how to punch numbers into this simple formula.

While all these profitability ratios throughout these articles provide valuable insight into a company’s financial performance during the operating cycle, the analyst should be aware of manipulation techniques used for distorting the income statement before drawing any conclusions based upon these profitability ratios.

Risk Management

Risk Management

Risk management is absolutely critical in the success of an active trader. Without prudent risk management, it is very possible for trader to lose their entire account in just a couple of trades. Risk management helps you understand the potential downside to every trade and make informed decisions on each trade you take.

To start with basic risk management, a trader needs to understand the concept of support/resistance lines, stop-loss and profit taking. In essence, risk management is about calculating the probability of winning and making the soundest trading decisions. A good trader will need to know where to enter a position and where to exit a position. If the potential reward when compared to the potential risk is favorable enough, the trade is executed.

To a new trader, an easy way to determine this is by looking at the support and resistance line. For example: In a long scenario, the difference between the current price of the stock to the next line of support versus the difference between the current price of the stock to the next line of resistance is called the risk/reward, or R/R ratio. As you probably might have guessed, a low risk and high reward ratio makes a favorable trade. A general rule of thumb of a good trade is 1/3. If the stock price drops below your designated line of support, you would sell the stock immediately, and if the stock price hits your target at the line of resistance, you will cash out and take profits. Another popular way of setting R/R is using a pair of Moving Averages, or MA.

Not all trades you take will hit your profit target

In fact, only a small percentage of the trades will, and for those that do not, you will have to cut losses immediately. To enforce this, traders often use stop-loss function to liquidate their positions immediately. The stop-loss is triggered automatically by your broker. Keep in mind though, if you have a DRIP set up, you will no longer be buying the fractional shares as you have sold the security!

Understandably, many traders do not feel comfortable with taking a loss and therefore, do not adhere to the cut-loss point 100% of the time. The stop-loss insures that this does not happen and a loss will always be cut before it gets out of hand.

Overall, the strategies used in making your trades can vary greatly and the examples mentioned here is by no means a hard rule. The key is that you have a very clear idea of when you will enter and when you will exit a trade. Effective risk management involves having a clear idea about the risks involved and ensuring that you do not break your rules.

A Little Investing Advice – Are Bonds Better Than Stocks?

A Little Investing Advice – Are Bonds Better Than Stocks?


Bonds might not exactly be as visible in the media as stocks. There’s much more excitement that surrounds the area of stocks which makes them discussed in the press far more. In reality, there are investors who have never heard of a bond even though they may have dabbled in the stock market and even looked at instruments like traded funds and futures. However, the fact remains that though bonds might not be the as high profile and very often pull in lower returns, they are probably safer and healthier.

You can strike it rich with stocks!

Stocks have a certain thrill that comes attached to them. Picture yourself buying a stock and waking up the next day to  its  value  increasing by 10%. It can heady, that feeling. And of course, investors who watch their stocks duplicate in some months feel that they are incredibly smart or they are incredibly lucky! Yet inbuilt with the joy factor is also the factor of risk. Stock prices are extremely volatile and what goes up, up, up can come crashing down in a moment, totally unexpectedly. Really often, the swings can be very large and rapid indeed.


are bonds better than stocks

So what makes bonds appealing? Are bonds better than stocks?


Bonds on the other side of the coin have a more boring tag attached to them. But if you look strong, they do come in a variety to choose from – reliable and unexciting U. S. or corporate AAA 10-year ones that give you a steady but small produce to junk bonds that can give you more than 15%! With bonds, too, you have to weigh them with the same principles as you would to stocks – the calculated risk factor against the rewards you wish to get. This is the standard trade-off. Nevertheless, the risks in the bond market are substantially lower and what is even more comforting, they may be easy to calculate.


You need more money with bonds


You will need more capital for the first investment in bonds. You may only get one bond for a hundred shares of $10 stock. You’ll also find mutual funds that invest mainly in a genuine and your broker could advise you about other choices like ‘pay as you go’ plans. The trouble with bonds is the fact that you can’t trade them as easily as you would stocks and shares. As far as stocks go, for the majority of all of us, it’s a matter of a few clicks of the mouse. Bonds, however, need you to make that mobile phone call and not all providers can be traded through brokers. Bonds also entice a higher commission. Begin focusing check with your dealer who will list out the options for you.

Anytime you are looking at the short-term, bonds are definitely less volatile. Nevertheless, one thing they are sensitive to is interest rates. Bonds always have a coupon rate while shares have dividends which one could look at as interest being paid on the stocks though this might be sometimes skewed in line with the whims of the management. Where bonds are concerned, the coupon rate is fixed during the time when they are issued. So if you are planning to sell your bonds, particularly before their date of maturity, this rate will be in contrast to other investments that give interest. So you will discover that the prices of bonds are damaged by not only what their coupon rate is but also how far they have to go before their maturity. Bonds tend to be more inspired by government policies than stocks are. What could affect bonds are substantial borrowings, which could suggest the government issuing bonds or by setting the prime rate lending rates or thanks to legal guidelines that had an effect on insurance companies, banking institutions or large institutions.

As a result what seems to emerge is that it will pay to have a diversified portfolio. Whether you directly buy them or perhaps you have them thanks to your mutual funds, bonds mean much more safety and will be a welcome addition to your investments.

How to Retire Comfortably

How to Retire Comfortably

Aging is an inescapable part of life. There are no exceptions. All of us will grow old someday. However, some of us will retire comfortably. Others will struggle as they live through the pain of retirement. For instance, some of the challenges retirees encounter include rising inflation, unbearable health care costs, and the thought of leaving an inheritance for their loved ones. You can avoid these problems if you start planning for your retirement today.

Do not wait until you grow old because doing so would make it hard for you to adjust to societal changes including fluctuations in the performance of the economy. Remember, the average lifespan is 79 years while the average retirement age is 62 years. Interestingly, another study showed that a 55-year-old individual has a 96% chance of reaching 90 years. Will you live comfortably for all these years? You should.

Here is how to retire comfortably

Clear your debts

The typical interest rate for debts on credit cards, personal loans, renovation loans, car loans, and mortgages is 24%, 5.5%, 5%, 2.78%, and 1.3% respectively. This interest represents a part of your income that you could have used to handle your expenses. Avoid these debts as much as possible so that your retirement income is free of obligations to pay debts.

Contribute automatically

Everyone has a weakness especially when it comes to money. More specifically, people use it as soon as they see it. Avoid such mistakes by automating your contributions to your retirement package. In other words, the bank should deduct it immediately so that you avoid the temptation that comes with having it within easy reach.

retire comfortably

Increase your savings periodically

Some people save a constant amount of money throughout their working life only to discover that it hardly meets their retirement needs. Remember, the average costs faced by retirees amount to $738,400 which includes medical care that costs $260,000 on average. Will you have enough for your retirement if you save small bits every month? Increase your monthly savings to substantial chunks so that you can live comfortably as a retiree.

Stay close to family members and friends.

Your loved ones are your most reliable pillar of support. They will give you hope, joy, and peace. Nothing is more powerful in life than these three things. More specifically, they will support you physically, emotionally, and psychologically. They will make you laugh and finally, you will experience tranquility once you see that the next generation is ready to take over from you.

These are all the tips that you need to live comfortably after retirement. Follow them, and things will work out well for you. Moreover, talk to financial experts regularly so they can update you on the best financial options for retirees.

Tips on How To Increase The Value of Your Home

Tips on How To Increase The Value of Your Home

value of your home

The family home is the households biggest asset. It’s normally the case for anyone who does not own a billion dollar company. Increasing the property value is a good investment over time. It also prevents a mortgage short sale.

A high-value property can increase your credit rating and the amount of loan you can get. A well maintained and updated home does not only increase the market value, it makes the house more comfortable to live in.

Here are a few tips on how to increase the market value of your family home.

Cleanliness is next to Godliness

A clean home is pleasing to the eye. It is also safer and prevents diseases. A clean property appeals to buyers and appraisers. It does a lot to increase the property value.

A well-maintained lawn, a blooming garden, and a shiny floor will help in improving market value. There are plenty of areas in a property that are often neglected and can reduce a properties value. The chimney, HVAC, and rain gutter are a few examples. A clean house does not only make it more appealing to buyers, it improves the health of its occupants.

If your property has a pool, a stable, barn, boathouse, or other outdoor feature that can increase property value. Make sure these are also well-maintained.

Improve Curb Appeal

The top three main factors for the value of a property is its location, the size, and curb appeal. There is not much you can do for the first two without a significant investment.

Curb appeal is something that can be easily fixed. Curb appeal is the attractiveness of your home when viewed from the street. Properties for sale with a good curb appeal will get more showings and that increases market value.

There are a few things you can do to improve your curb appeal. The first is attractive landscaping. A beautiful front lawn helps in increasing your properties value.

A fence will also help. It does not only increase safety and security, but a pretty fence will also increase curb appeal. The same can be said for outdoor lighting.

A color symmetry will also do the trick. Your favorite pastel colors may work well for you, but buyers and appraisers will not appreciate a neon green house.

Update Appliances

Updated appliance fixtures will do a lot in improving your property value. Newer appliances are more visually appealing and consume less electricity.

Condo units and multi-family homes that have very little exterior should concentrate on this.

Paint it

Newly painted homes look new. Exterior features such as decks, fences, patios, and trellises should be painted at least once every five years. Exterior weather conditions are very harsh on paint. The hot sun and rain will contribute a lot to diminishing the value of the home.

If you have the budget. Flooring and bathroom fixtures will increase your properties value. It will require a significant investment to create a modern bathroom and kitchen. If you have the budget and want to increase the value of the property. The kitchen and bathrooms are the first places to improve. A modernized kitchen and bathroom and an open floor plan will significantly increase property value.

Moving from a city to a small town

Moving from a city to a small town

Yes, it is the most technologically advanced age since mankind came into existence and everyone wants to live in a city because people believe that city life is fantastic.

IPhones, Chevrolet sport cars, huge malls and clubbing are normal things that can be associated with daily life in a city and those are the reasons why everyone wants to live there. With that being said, moving from a city to a small town is a ‘NO’ for a lot of people.

Life is good in a city but why would you want to move from a city where you have everything to a small town where you are severely limited? Moving to a new city can be challenging, especially when it’s a small town.

Why Should I Move From A City To A Small town?

moving to a small town

Why is the big question here, why should you leave the comfort and luxuries of the city for a small town? I will try and answer some of those questions.

1. A Healthier Lifestyle Awaits You In A Small Town:

A healthy lifestyle is one of the things a small town has to offer because you do not have to suffer any type of pollution. Small towns are noise free and pollution free due to the lack of big companies and industries that pollute the air and water in the city.

You will have to eat healthier meals in a small town because you won’t really have access to the huge amount of processed food that the city provides. You will learn to control your appetite and eat only the best of fresh food and vegetables.

2. Say Bye To The Overcrowded City Life:

Overcrowding is the most common thing in the city and everyone will agree that overcrowding can be a pain in the neck. In the city there is no available land to have a lot of space to yourself but in small towns you can have a lot of space to yourself and you won’t have to share walls with anyone. Sounds fantastic doesn’t it?

3. Reduced Crime Rate:

In the city you can’t walk dark corners without the fear of petty thieves or frightening robbers. The crime rate in the city is very high but it is different in small towns. You can have peace and enjoy every second of your time with family and friends.

5. You Learn A lot From A Small Town:

Unlike a city where you have people and services to help you with some chores, a small town can be different because you will have to learn new skills. You will learn to do those things you thought you could not do on your own.

Why Will Leaving A Big City Hurt?

moving to a small town

Everything that has an advantage will almost always have a disadvantage and you may even regret moving from a city to a small town. Trying to adapt to the new lifestyle may initially hurt, and here are some of the negative things you may find.

1. Limited Facilities:

Facilities like clubs, theaters, and a library may not be always available in a small town. If you’re tired of enjoying the calm and peaceful life of a small town you can’t get any real fun.

2. Unbearable Internet Issues:

Some small towns do not have this problem but a lot of small towns do. If you’re addicted to the internet a small town is not the best place for you because the connection can be poor.

3. Not The Most Ideal Place To Get Urgent Attention:

Nature has its way and when it decides to destroy things a small town is the wrong place to be. Mainly because you may not get immediate help. This is bad, but before you get scared just remember that in the city there can be bigger disasters.

Moving From The City To A Small Town Right Now

Now you know what you will miss if you leave the city and you also know what you will gain if you leave. So you have decided now to move to a small town? Or maybe you have decided to stay in the city where you can get all the modern day facilities you crave. What has influenced your decision?

Tips for Investing in Real Estate in a Small Town


real estate

More and more potential entrepreneurs are interested in investing in real estate in a small town. In part, this may have to do with the amount of talk about real estate investing in today’s economy. It seems that wherever you look, there are people willing to share their own story of how they got rich with real estate. Now, investing in real estate is much hard than learning how to buy stocks. While investing in real estate can generate a good passive income, you must enter into these types of investments with your eyes wide open and at the perfect price point. To be successful, you must make sure that you:

1) Start small and low risk.

In reality, real estate in a small town is going to be harder than in a big city like Edmonton. This is why you need to start out small. In fact, most successful real estate investors have started out small. They buy low-cost properties that sell below market value. They then sold these properties for a healthy profit after having renovated and lived in the properties for a while. Another good option is to buy a house that already has tenants and continue renting to the same tenants. Low-risk investments at first do not look very glamorous, but they are the path to real wealth and good passive income. As a bonus, low risk and small investments will allow you to get your feet wet without having to pay millions of dollars in mortgages. They are perfect for investors who are just starting out.

2) Study, study, study.

When investing in real estate in a small town, it is imperative that you carefully study each property before buying it. You should study the condition of the home, the price of housing in the area, the neighborhood and much more. Reviewing everything twice ensures that you do not get stuck. You should also investigate real estate investments in your area. You should familiarize yourself with contracts and tax laws. The more you know, the more likely you are to find large real estate investments.

3) Get a mentor.

No successful real estate mogul has done it by themselves. Either try courses or books created by a successful investor or take the time to look for favorable investors who can advise them. The creation of networks is an essential part of real estate investment since it allows you to learn about the experiences of experts who know how it is done.

4) Make it a business, complete with a business plan.

Real estate investors are professionals. They execute their investments like a business. They have a separate telephone line for their businesses, they dress the part, and they design a business plan that tells them where they are going. Real estate investors also set goals for their businesses, instead of just hoping to make “some money” from the properties.

5) Always do the calculations on paper.

You may think real estate in a small town is a slam dunk, but is it really? The only way to know with certainty is to calculate everything on paper. What is the total cost of buying, renewing and managing the property? Also, how much can you expect to receive for the property? Until you do all the mathematical calculations on paper and calculate them reasonably, you cannot determine which real estate offers are good and which are not.

These basic tips are those that real estate investors use to turn properties into real investment opportunities. Use these tips, and you will also be on your way to a successful career as a property flipper.

Tips to help make friends with your neighbor’s in a small town

Tips to help make friends with your neighbor’s in a small town


Needless to say, it is important, even fundamental, to get along well with your neighbors if you want to avoid midnight demons every Saturday night or the clipper at dawn on Sunday. Good relations with neighbors, which will lead to a climate of trust and friendship worthy of Desperate Housewives, are easily obtained with a few tips. It’s up to you to take the first step.

1-Celebrate Neighbors Day

Since 1999, Neighbors’ Day has been enjoying growing success every year. This is also the case for neighborhood meals. This kind of event may be organized on your street. And if this is not the case and you have a large yard, why not invite your neighbors? Everyone will bring something to nibble on and you can all have a good time.

2-Share a glass of friendship

When newcomers settle in the neighborhood, you can offer them to sit down and have a drink to get to know each other better. It’s a relaxed way to get to know them that will make them feel welcome.

3-Offer a homemade pastry

The favorite technique for most Canadians to get to know their neighbors is to arrive at the door with a basket of homemade pastries. Is making an impression on someone by tempting them with culinary delights not an excellent start? And besides, if you do not know how to bake, a basket of vegetables from the garden or a specialty wine will do the job.

4-Organize a ‘clean street’ initiative

To finally meet your neighbors, you can organize a very popular event in the Anglo-Saxon countries: the “clean street” operation. Ecology is a unifying theme, especially when it touches the environment and your small town. Your neighbors will surely be open to the idea of spending a morning together to rid the street of its polluting and unattractive waste.

5-Offer small services to your neighbors

Have you noticed that your neighbor is coming home late and cannot take out their trash some nights of the week? Take it out for them that day. Did he complain about his broken mower? Lend him yours.

6-United by a common cause

One day, you may learn that a family in your building or neighborhood is in trouble. This is a perfect opportunity to get closer to your neighbors. Start a donation box, or maybe just a card with everyones thoughts and condolences. This will definitely grow your relationship.

7-Fence Friends

You never meet your neighbor, which can be a fault of this accursed modern lifestyle being generally crazy. Yet you already have one thing in common: your fence. While everyone enjoys their yard, this is the perfect time to start a conversation over the fence. Don’t know where to start? Ask them if it bothers them that you cut the common hedges.

8-Some pets in common

One of the best times to initiate conversation is dog walking dog owners would tell you. Often solitary, these relaxed moments allow for starting a discussion with the neighbor who also walks his animal. The best part? You already have one thing in common: your dog. Keep an eye on the schedule of the neighbor you wish to approach, but not in a creepy way.

9-My building on Facebook

If you have a digital soul, you can create an online page for your building or neighborhood on social media. Each neighbor will be able to come and chat there to get to know each other better or to simply share ideas or events from the neighborhood.

10-Leave a note on their door

When all else fails (or when the past few of tips have not gotten you beyond the small talk) it is possible to leave your neighbors a note. This works particularly well if you’re throwing a party anytime soon: Leave them a note letting them know you are having people over and want them to pass by. They may come, or else they may just knock on your door to say hello if they will not be able to attend. A post-it note can be really powerful.

11- Or just…

Ring the doorbell! Present yourself with a smile. Whoever said that the simplest things work best is a very wise man!

My First Post!

Hello, and I would like to welcome you all to the first post on my brand new website. I started this blog to share my experiences with my first “small town”. A native of Ontario Canada, I moved to Edmonton a few years ago and decided I just didn’t want to live in the big city anymore! I spent the better part of 6 months searching for a small town in Alberta that I could really settle in with. Well, here I am, in beautiful St Paul Alberta!

I hope to highlight some of the best events and experiences I have seen here so I can really bring out the spirit of the town itself! That being said, I hope to blog about my own personal experiences in town as well, because to those who know me, they know I am a talker! I really hope you become a long time reader of this blog, and I am going to do my best to post as often as I can, whether it be about what happened in town last weekend, to talking to someone looking to invest in a property in town! I work in the financial sector, so feel free to message me where it be about a rrsp contribution or how to bake the best vanilla cookies you’ve ever had!

My name is Tiffany, and if you have any questions feel free to head over to my contact page or the contact widget in the sidebar and I will do my best to respond as quick as possible!