Humor and Quirks Humor and Quirks

What Negative Return on Equity (ROE) Means to Investors


Published on 2025-03-17 14:41:21 - Investopedia
  Print publication without navigation

  • In the ROE formula, the numerator is net income or the bottom-line profits reported on a firm's income statement. The denominator is equity, or, more specifically, shareholders' equity. When net income is negative, ROE will also be negative.

The article from MSN Money discusses the implications of a negative Return on Equity (ROE) for investors. ROE is a key financial ratio that measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. A negative ROE indicates that a company is not generating enough profit to cover its equity, essentially meaning it's losing money. This can be a red flag for investors as it suggests potential issues like high debt levels, poor management decisions, or operational inefficiencies. However, the article also points out that a negative ROE isn't always a definitive sign to sell or avoid a stock. It could be due to temporary setbacks, restructuring costs, or investments in future growth which might not yet reflect in current earnings. Investors are advised to look deeper into the reasons behind the negative ROE, consider the company's long-term strategy, and compare it with industry standards before making investment decisions.

Read the Full Investopedia Article at:
[ https://www.msn.com/en-us/money/topstocks/what-negative-return-on-equity-roe-means-to-investors/ar-AA1B6wwT ]