Should you be excited about the 16% return on equity for Kroger?

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If you want to learn all about Kroger’s latest ROE and why it’s important to know about it as an investor then this blog is for you as we will highlight the recent return on equity (ROE) data and why it’s important.

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The Return on Equity, or ROE, is a test of how effectively a company can increase its value and manage investors’ money. In simpler terms, it measures a company’s profitability concerning shareholder equity. Now, wondering how do you calculate return on equity?

Return on equity can be calculated using the formula:

  • Return on Equity = Net Profit (from Continuing Operations) ÷ Shareholders’ Equity
  • So, based on the above formula, Kroger’s ROE is:
  • 16% = 1.5 billion USD 9.2 billion USD (based on the subsequent twelve months to May 2021).
  • “Return” is the income the company has earned over the past year. One way to visualize this is that for every $1 of its shareholder capital, the company generated $0.16 in profit.

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Now, the question which all investors and partners are thinking about is Kroger is a good option to invest in and is ROE is good enough? Well, let us tell you that Kroger has an above-average return on equity (12%) in the consumer retail industry. This week Kroger has more than 16% ROE, which is a good sign. However, a high return on equity does not always indicate high profitability. Especially when a company uses high levels of debt to finance its debt which may enhance the return on equity but high leverage puts the company at risk. You can see the two risks we identified for Kroger by visiting our risk dashboard for free on our platform here.

In addition, Kroger uses a large amount of debt to increase returns. The debt-to-equity ratio is 1.38. There is no doubt that its return on equity is decent. But the very high debts the company is taking on are not very exciting to see. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it. No doubt that Kroger will be growing more in the future so, it is the right time to invest.

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