tag:blogger.com,1999:blog-7186808544719836463.post2790825820647750965..comments2009-09-30T03:40:41.967+05:30Shyam Pattabihttp://www.blogger.com/profile/04036526522675930475shyamscolumn@gmail.comBlogger14125tag:blogger.com,1999:blog-7186808544719836463.post-85314325614207700232009-09-30T03:40:41.967+05:302009-09-30T03:40:41.967+05:30According to Investopedia, ROCE is defined as EBIT/ (Total Assets- Current Liabilities) ? <br /><br />That way your formula becomes (Net profit + Interest+Tax ) / (Equity cap+ Debt cap - CL) ??<br /><br />Why the discrepancy between the two?<br /><br />Jonhotterhttp://www.blogger.com/profile/13489987333388267464noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-2315721311873166552009-08-04T12:03:14.663+05:302009-08-04T12:03:14.663+05:30hi shyam..<br /><br />excellent post.<br /><br />have some query regarding calculating the equity capital.From balance sheet i am able to get the specified data but i am confused whether to include the surplus and provision made by the company from previous yr to arrive at total capital or i should only consider the share capital.<br /><br />regards<br />Naganagendranhttp://www.blogger.com/profile/07355810757480501194noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-88023111461085132202009-06-19T20:26:21.774+05:302009-06-19T20:26:21.774+05:30karthik - you are right. that&#39;s why i have suggested that you stay away from companies that have more than 25% of total capital as debt in my next article. also you will notice that the higher the debt/equity ratio, the lower the return on total capital. (although the return on equity will get boosted)Shyam Pattabihttp://www.blogger.com/profile/04036526522675930475noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-73944446630825937622009-06-18T18:24:02.517+05:302009-06-18T18:24:02.517+05:30Hi Shyam,<br /><br />Excellent article.. I have one question... to calculate ROC, you have interest in the numerator..so more the interest more the ROC.. But isnt this interest the company is paying for the loan it has got?.. So is this not a bad thing?karthikhttp://www.blogger.com/profile/06869050750982435094noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-63806149785348777752009-06-16T20:07:38.000+05:302009-06-16T20:07:38.000+05:30JAs - you must not use the formula directly in the case of &quot;banks&quot;...will need some modifications...hope to publish a followup on this sometimeShyam Pattabihttp://www.blogger.com/profile/04036526522675930475noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-71730921361614680242009-06-09T04:58:59.892+05:302009-06-09T04:58:59.892+05:30Hey Shyam<br />Kudos on the good work - came across your blog a few days back. Informative but still very confusing for me - maybe I&#39;m a tad slower ;-)<br /><br />I liked the way you explained how to get about the ratios what you did not mention was how to gauge the ratios.<br /><br />For E.g. if I pick up YES bank (This is one of the shares I own) and try to calculate the ratio<br />The inputs are<br />Equity Capital for Year 2008 - 3307.5 million Rs<br />Debt Capital for Year 2008 - 2489.0 million Rs<br /><br />Net Profit for Year 2009 - 3038.4 million Rs<br />*Interest charges for Year 2009-411 * 4 = 1644 million Rs<br /><br />*I could not locate the exact number so I just extra-polated the numbers for last quarter for full year even though this number is definitely going to be higher than the actual number.<br /><br />If we calculate the ration RoC now it comes to 4682.4*100/5796.5 = 80%<br />What does this 80% mean?<br /><br />Thanks<br />Jas./Jashttp://www.blogger.com/profile/13648956891507885966noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-41208851684749652712009-05-04T14:58:47.915+05:302009-05-04T14:58:47.915+05:30Dear Shyam,<br /><br />Awesome article!<br /><br />Just an addition:<br />The reason why the ROE is more for the second property is high because the risk is higher(since borrowing makes equity vulnerable, when you liquidate company you first pay the debt and then pay equity). Higher the risk more the returns.<br /><br />please brief why dont u agree on PBT or EBIDTA<br /><br />Thanks<br />ShankarIvanHoehttp://www.blogger.com/profile/05727804464314156377noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-20316523613444872122009-04-21T14:52:16.427+05:302009-04-21T14:52:16.427+05:30Manish - I look for min. 20% return on capital by the company<br />Chirag - my pleasure as always<br /><br />Things to watch out while using ROCE (return on capital employed) from third party websites:<br />1. The calculation methodology might vary (some people use PBT- Profit before tax or EBITDA - earnings before interest and tax in the numerator and don't include cash as part of capital employed in the denominator, all of which I don't agree)<br />2. Reported ROCE for a company is typically for the standalone entity and not for consolidated entity. These days most companies have subsidiaries etc.. in which case standalone numbers are irrelevant and only the consolidated financials and ratios matter.<br /><br />regardsShyam Pattabihttp://www.blogger.com/profile/04036526522675930475noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-76826096224248577512009-04-21T10:10:14.281+05:302009-04-21T10:10:14.281+05:30Reading your posts for the first time and you have done a good job. Thanks for writing.Mahadevanhttp://www.blogger.com/profile/16144936884617323977noreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-64266801444535402472009-04-18T15:13:24.478+05:302009-04-18T15:13:24.478+05:30Thanks for another gem Shyam. Your articles are extremely informative for an average investor, helping us take an informative decision rather than listening to analysts and investing as they want.<br /><br />One question I have about arriving at ROC. Instead of us having to calculate ROC by looking at balance sheets, can you hint us a site where we can get ROC of a particular company. On one popular site, i have seen Return on Capital Employed. Is that same as ROC? What is the difference? Please continue educating us.<br /><br />thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-27335936471693634952009-04-13T22:59:03.952+05:302009-04-13T22:59:03.952+05:30hiiiii shyam..u r really mind blowing<BR/>and excellent before reading ur column i'm really passionate to learn as much as i can abt stock market.i want to be a big broker in dalal street..thank you shaym for helping usAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-65440650801188153392009-04-13T12:35:39.262+05:302009-04-13T12:35:39.262+05:30Excellent One Shyam.<BR/>Atleaset there is one person who can explain this &quot;Financial jargon&quot; to the common man with simple language &amp; examples and that is You only!!. <BR/>Expecting many more such articles from you in near future .keep up the good work. <BR/>Thanks <BR/> --RaiAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-87896133903764368572009-04-10T04:01:30.941+05:302009-04-10T04:01:30.941+05:30Hello Mr Shyam<BR/><BR/>Excelent Post. You explained in a Sweet and Simpl way about ROE and ROC which people think are the Complex ones like Rocket Science.<BR/><BR/>Thank you very much<BR/><BR/>Chirag AliChirag Alinoreply@blogger.comtag:blogger.com,1999:blog-7186808544719836463.post-64085771408135881702009-04-09T23:46:45.759+05:302009-04-09T23:46:45.759+05:30Excellent Shyam <BR/><BR/>If the topic you discussed was crown , your simplicity was its jewel :)<BR/><BR/>I learned an simple and extremelly important thing from your article . <BR/><BR/>According to my thinking , we must seperately see <BR/><BR/>Pure Equity Return = Net Profit/Equity Capital <BR/><BR/>and over all Return on Total capital .It should give us better indication and more clear views . <BR/><BR/>btw , Is there a benchmark return on capital which we investors should look at like minimum 5% or 10% , something like that .<BR/><BR/>Let us know .<BR/><BR/>Manish<BR/>http://www.jagoinvestor.comManish Chauhanhttp://www.blogger.com/profile/02521133110428729048noreply@blogger.com