U.S. Markets closed

# Should We Be Delighted With Admiral Group plc's (LON:ADM) ROE Of 48%?

One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. By way of learning-by-doing, we'll look at ROE to gain a better understanding of Admiral Group plc (LON:ADM).

Over the last twelve months Admiral Group has recorded a ROE of 48%. Another way to think of that is that for every £1 worth of equity in the company, it was able to earn £0.48.

Check out our latest analysis for Admiral Group

### How Do I Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit ÷ Shareholders' Equity

48% = UK£401m ÷ UK£823m (Based on the trailing twelve months to June 2019.)

Most readers would understand what net profit is, but it’s worth explaining the concept of shareholders’ equity. It is all earnings retained by the company, plus any capital paid in by shareholders. The easiest way to calculate shareholders' equity is to subtract the company's total liabilities from the 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 amount earned after tax over the last twelve months. The higher the ROE, the more profit the company is making. So, as a general rule, a high ROE is a good thing. Clearly, then, one can use ROE to compare different companies.

### Does Admiral Group 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. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. As is clear from the image below, Admiral Group has a better ROE than the average (13%) in the Insurance industry.

That's clearly a positive. We think a high ROE, alone, is usually enough to justify further research into a company. For example, I often check if insiders have been buying shares.

### Why You Should Consider Debt When Looking At ROE

Companies usually need to invest money to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same.

### Admiral Group's Debt And Its 48% ROE

Although Admiral Group does use debt, its debt to equity ratio of 0.59 is still low. Its ROE is very impressive, and given only modest debt, this suggests the business is high quality. Judicious use of debt to improve returns can certainly be a good thing, although it does elevate risk slightly and reduce future optionality.

### In Summary

Return on equity is one way we can compare the business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. All else being equal, a higher ROE is better.

But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So you might want to take a peek at this data-rich interactive graph of forecasts for the company.

If you would prefer check out another company -- one with potentially superior financials -- then do not miss thisfree list of interesting companies, that have HIGH return on equity and low debt.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

Yahoo Finance

### Apple earnings: Sales beat expectations led by iPhone and wearables

Apple (AAPL) reported its Q1 2020 earnings results on Tuesday, and beat Wall Street analysts' top and bottom line estimates thanks to strong sales through the 2019 holiday shopping season. Here are the most important numbers from the report, as well as what analysts had projected for the quarter as compiled by Bloomberg. Revenue: \$91.8 billion versus \$88.4 billion expected Earnings per share: \$4.99 versus \$4.55 expected iPhone revenue: \$55.96 billion versus \$51.50 billion expected Services revenue: \$12.72 billion versus 12.98 billion expected Q2 2020 guidance was also above expectations for the tech giant, coming in at \$63 billion to \$67 billion compared to Wall Street estimates of \$62.33 bi...

### Ex-Best Buy exec linked to CEO probe denies affair with Corie Barry

A former executive at Best Buy Co. Inc. who was alleged to have been romantically involved with Best Buy CEO Corie Barry — a claim that triggered an investigation of the retailer's leader — has denied the allegations. The Star Tribune reports that Karl Sanft, who had been a senior vice president of retail operations at Richfield-based Best Buy (NYSE: BBY) before leaving the company last fall, issued a short rejection via email: "The anonymous allegation that I had an affair with Corie Barry is false." Sanft, now chief operating officer at a California fitness company, was named in an anonymous letter sent to Best Buy's board of directors last month that alleged Barry had engaged in an inappropriate romantic relationship with him before she became CEO. The letter became public knowledge after The Wall Street Journal reported that Best Buy had begun an independent investigation into the matter.

MarketWatch

### ‘He owed a lot of back taxes.’ My ex-husband forgot to sign paperwork to split a sizable investment account — then he died. Can his estate claim that money?

One of our investment accounts was ordered to be split \$30,000/\$60,000, as per our divorce agreement. The investment company says the account is now all mine. Your question has two parts: can his estate come after you for back taxes and can his estate claim the money in your investment account.

• News
Associated Press Videos

### Video shows minutes after Kobe Bryant crash

NBA legend Kobe Bryant, his 13-year-old daughter and seven others are dead after their helicopter went down in Southern California. Jan.

MarketWatch

### Apple stock gains after record earnings, upbeat forecast

Apple Inc. posted record quarterly results for its holiday quarter Tuesday afternoon while easily topping expectations for revenue and earnings. Shares (AAPL) were up 2.6% in after-hours trading as the company also gave a revenue forecast for the current quarter than came in ahead of the consensus view. Apple generated net income of \$22.24 billion, or \$4.99 a share, up from \$19.97 billion, or \$4.18 a share in the year-earlier quarter.

### Chipmaker AMD Narrowly Tops Fourth-Quarter Targets

Chipmaker Advanced Micro Devices Tuesday narrowly beat Wall Street's targets for the fourth quarter. The AMD earnings news sent AMD stock lower in extended trading. The Santa Clara, Calif.

### Typical Retirement Savings By Age Groups: Are Yours Bigger?

Active savers — in this case, Americans who own an IRA and-or a 401(k) account in the custody of Fidelity Investments — had savings for retirement of \$215,400 as of Sept. according to new data IBD has obtained from Fidelity. In contrast, the average for all working-age families is shockingly low.

MarketWatch

### AMD stock slides as outlook falls below Wall Street view

AMD (AMD) shares declined 2% after hours, following a 2.6% rise in the regular session to close at \$50.53, after the company said it expects revenue of \$1.75 billion to \$1.85 billion for the first quarter, while analysts had forecast revenue of \$1.86 billion. Fourth-quarter revenue rose to \$2.13 billion from \$1.42 billion in the year-ago period, while analysts surveyed by FactSet had forecast revenue of \$2.11 billion. The sequential decline in revenue going into the first quarter “is driven primarily by negligible semi-custom revenue which continues to soften in advance of the ramp of next-generation products, in addition to seasonality,” AMD said in a statement.

Associated Press

### What to know for year two of the Trump tax plan

Last year's filing season was an adjustment for taxpayers and industry professionals alike as it was the first under a massive overhaul of federal tax law. While this year's season is expected to be more sedate, there are a few tweaks to be aware of. STANDARD DEDUCTION The standard deduction doubled under the new tax law that took effect in 2018.

### Lucky's Market files for bankruptcy, plans to shut down Colorado headquarters

Lucky's Market has filed for bankruptcy and is closing its corporate headquarters in Niwot. The Lucky's Market Parent Company — a registered LLC — owes about \$36 million to its 30 largest creditors, based on Chapter 11 bankruptcy reorganization petitions the company and its affiliated stores filed Monday in the U.S. Bankruptcy Court in Delaware. The company checked the box on the paperwork saying it had between 10,001 and 25,000 creditors.

### Jeff Bezos throws a D.C. shindig and Amazon employees protest policy

That stock dip cost CEO and founder Jeff Bezos roughly \$2.6 billion in stock value. quot;Scourge of counterfeiting": So, back to the DHS report. The Trump administration said it will clamp down on counterfeit products by targeting sellers and the online platforms they use in a move that could affect Amazon.

MarketWatch

### What the new FICO credit score reveals about the precarious state of Americans’ finances

Fair Isaac Corp. (FICO) is changing how it calculates credit scores, and the new criteria reveal some of the trouble spots in Americans' financial health. Two of the most substantial changes in the new scoring models, FICO Score 10 and 10T, are how they account for personal loans and how they measure creditworthiness over time. Previous FICO score models were not anchored as much to personal loan data, yet since 2015 the number of personal loans has risen 42%, making personal loans the fastest-growing category of debt in the country.

Bloomberg

### AMD Gives Revenue Forecast That Falls Short of Analyst Estimates

The stock has surged to more than \$50 this year up from less than \$3 at the end of 2015 as investors bet its new products, and manufacturing stumbles by Intel, would open the door to sustained market share gains. AMD's projections benefited from strong demand for server chips from cloud data center operators and personal computer makers, mirroring Intel's report from last week. The company's shares declined about 2% in extended trading following the report.

Autoblog

### BorgWarner auto parts maker to buy Delphi Technologies for \$3.3 billion

BorgWarner Inc on Tuesday agreed to buy UK-based Delphi Technologies Plc in a \$3.3 billion deal, as the U.S. auto parts maker looks to expand in a growing market for hybrid and electric vehicles. Delphi shareholders will receive 0.4534 shares of BorgWarner for each share held. That translates to \$17.39 per share, a premium of about 77% to Delphi's closing price on Monday.

MarketWatch

### Xilinx stock falls more than 10% after weak fourth-quarter guidance, layoffs

Xilinx Inc. (xlnx) shares fell more than 10.9% in the extended session Tuesday after the company reported fourth-quarter guidance below consensus estimates but higher-than-expected third-quarter sales. The company said it expects fiscal fourth-quarter revenue of \$750 million to \$780 million. Xilinx also said it expects to lay off 7% of its workers because of "revenue headwinds" and has slowed hiring to replace attrition.

• Politics
Yahoo Finance Video

### A-list celebrities attend lavish party at Jeff Bezos' D.C. home

Jeff Bezos threw a lavish party at his new Washington, D.C. home, and some high-profile names were in attendance. These include Federal Reserve chairman Jerome Powell, Ben Stiller, Kellyanne Conway, Bill Gates, and Jared and Ivanka Trump.

MarketWatch

### The main reason for the stock market’s decline is NOT the coronavirus

The coronavirus is getting a bum rap as the cause of the stock market's recent weakness. That decline gathered steam on Monday, when the Dow Jones Industrial Average (DJIA) was at one point down more than 500 points. It's not that any of us should have sympathy for the virus, of course.

TheStreet.com

### Jim Cramer: 6 Stocks to Buy on Coronavirus Fears

The selling was so intense in that period that it didn't matter if you were buying Verizon or Caterpillar or American Electric Power . There were so many people who left Wuhan, the epicenter, when they were still healthy and they are now coming down with the illness. It's pretty clear that the virus spreads from rapidly person to person, so rapidly that we are hearing lots of conspiracies about a bio lab in Wuhan that might have mistakenly discharged the coronavirus and it was not transmitted initially by animals to humans.

### Massive 777X takes flight, and Boeing expects big sales will soon follow

Boeing thinks the market for its 777X widebody jet, which flew its first test flight Saturday, will ripen over the next four years, despite the current order drought. Though 777X sales have been few and far between, the Chicago-based jet maker expects order demand will grow to between 60 and 100 jets a year starting in 2022, Boeing 777X marketing director Wendy Sowers said. The jet has 309 orders so far, and customers include: British Airways, Cathay Pacific Airways, Emirates, Etihad Airways, Lufthansa, Qatar Airways and Singapore Airlines.

Bloomberg

### Americans to Inherit \$764 Billion This Year, Mostly Tax-Free

Americans are projected to inherit \$764 billion this year and will pay an average tax of just 2.1% on that income, New York University law professor Lily Batchelder estimates in a paper published Tuesday by the Brookings Institution. “If anything, we should be taxing income from inheritances at higher rates than income from work,” Batchelder, a former adviser to President Barack Obama who has advised several Democratic presidential campaigns on tax policy, said in a phone interview.

TipRanks

### 3 “Strong Buy” Stocks Under \$5 That Are Ready to Run Higher

With Orbcomm's shares trading roughly 4X our 2021 adjusted EBITDA estimate, we view the risk reward on the shares as very positive… We believe if management can execute, the shares should return to higher multiples. What does it mean, then? It means that Walkley keeps his Buy rating on Orbcomm.

Bloomberg

### Exxon at a 10-Year Low is Challenge for Oil’s Biggest Major

Once the gold-standard of Big Oil, the stock closed Monday at its lowest since October 2010, amid a slump in oil prices due to concerns about weak demand coupled with a glut. Chief Executive Officer Darren Woods is running a counter-cyclical strategy by plowing money in new oil and gas assets, at a time when many investors are urging energy companies to improve returns for shareholders. Exxon is betting on a “windfall of cash” to arrive from its investments sometime in the mid to late 2020s, said Noah Barrett, a Denver-based energy analyst at Janus Henderson, which manages \$356 billion.

Bloomberg

### Lawrence Summers Wants to Target the Rich, But Not Through a Wealth Tax

In a paper being presented at a Brookings Institution conference on Tuesday, Harvard University economist Summers and his co-authors argue that their “pragmatic approach” is superior to the wealth taxes championed by Democratic presidential candidates Bernie Sanders and Elizabeth Warren.Because the proposed reforms build on the current tax code, they would be easier to administer and “more likely to be implemented successfully than riskier, untested alternatives that are vulnerable to political attacks, legislative impasse and legal challenges,” according to the paper. Summers is a paid contributor for Bloomberg Television.Summers and his co-authors -- University of Pennsylvania law and finance professor Natasha Sarin and research assistant Joe Kupferberg -- said their proposals have the potential to raise more than \$4 trillion over the coming decade.