Beijing Chunlizhengda Medical Instruments Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). We'll use ROE to examine Beijing Chunlizhengda Medical Instruments Co., Ltd. (HKG:1858), by way of a worked example. Beijing Chunlizhengda Medical Instruments has a ROE of 24%, based on the last twelve months. One way to conceptualize this, is that for each HK$1 of shareholders' equity it has, the company made HK$0.24 in profit. See our latest analysis for Beijing Chunlizhengda Medical Instruments How Do I Calculate ROE? The formula for return on equity is: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity Or for Beijing Chunlizhengda Medical Instruments: 24% = CN¥164m ÷ CN¥689m (Based on the trailing twelve months to June 2019.) It's easy to understand the 'net profit' part of that equation, but 'shareholders' equity' requires further explanation. It is all the money paid into the company from shareholders, plus any earnings retained. You can calculate shareholders' equity by subtracting the company's total liabilities from its total assets. What Does Return On Equity Signify? Return on Equity measures a company's profitability against the profit it has kept for the business (plus any capital injections). The 'return' is the profit over the last twelve months. That means that the higher the ROE, the more profitable the company is. So, all else being equal, a high ROE is better than a low one. That means it can be interesting to compare the ROE of different companies. Does Beijing Chunlizhengda Medical Instruments Have A Good ROE? One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. Importantly, this is far from a perfect measure, because