Module 3 of 8 in Fundamental analysis
Returns on capital
How much profit a business earns on the money invested in it. ROE, ROCE, ROA and returns on new investment, and how debt flatters some of them.
4 lessons in this module. Progress is saved in your browser as you go.
A business that earns ₹20 on every ₹100 invested is very different from one that earns ₹5, even if both report the same profit growth. This module covers the return ratios analysts use to judge how well capital is used, and how borrowing can flatter them.
By the end of this module you should be able to
- Calculate ROE, ROCE and ROA and explain what each measures.
- Explain how debt and buybacks can raise ROE without improving the business.
- Estimate returns on incremental capital and explain why they matter for growth.
Lessons in order
Module test
10 questions, chosen at random from a bank of 30 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Operating profit, EBITDA and net profit: ROE uses net profit attributable to shareholders, explained there.
- The balance sheet: Shareholders' equity comes from the balance sheet.
- Revenue and earnings growth: The lesson connects growth in profit to the capital needed to produce it.