Cash Flow Analysis Framework
RoE: Return on equity is equal to net income, after preferred stock dividends but before common stock dividends, divided by total shareholder equity and excluding preferred shares.
The practice of decomposing return on equity is sometimes referred to as the “DuPont System. ”
Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity.
Earnings per share is the amount of earnings per each outstanding share of a company’s stock. EPS is equal to profit divided by the weighted average of common shares.
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.
On the other hand, retained earnings refers to the portion of net income which is retained by the corporation.
Return On Assets: Return on assets is equal to net income divided by total assets. Return on assets shows how profitable a company’s assets are in generating revenue.
Ratio of Total Assets to Sales is Capital Intensity.