U.S. Markets closed

# With A Return On Equity Of 15%, Has CAE Inc.'s (TSE:CAE) Management Done Well?

While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. To keep the lesson grounded in practicality, we'll use ROE to better understand CAE Inc. (TSE:CAE).

Over the last twelve months CAE has recorded a ROE of 15%. One way to conceptualize this, is that for each CA\$1 of shareholders' equity it has, the company made CA\$0.15 in profit.

See our latest analysis for CAE

### How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit ÷ Shareholders' Equity

Or for CAE:

15% = CA\$335m ÷ CA\$2.4b (Based on the trailing twelve months to September 2019.)

Most know that net profit is the total earnings after all expenses, but the concept of shareholders' equity is a little more complicated. It is all the money paid into the company from shareholders, plus any earnings retained. Shareholders' equity can be calculated by subtracting the total liabilities of the company from the total assets of the company.

### What Does ROE Mean?

ROE measures a company's profitability against the profit it retains, and any outside investments. The 'return' is the yearly profit. A higher profit will lead to a higher ROE. So, all else equal, investors should like a high ROE. That means it can be interesting to compare the ROE of different companies.

### Does CAE Have A Good ROE?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. You can see in the graphic below that CAE has an ROE that is fairly close to the average for the Aerospace & Defense industry (14%).

That's neither particularly good, nor bad. ROE can give us a view about company quality, but many investors also look to other factors, such as whether there are insiders buying shares. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

### How Does Debt Impact Return On Equity?

Most companies need money -- from somewhere -- to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking.

### Combining CAE's Debt And Its 15% Return On Equity

While CAE does have some debt, with debt to equity of just 0.99, we wouldn't say debt is excessive. Its very respectable ROE, combined with only modest debt, suggests the business is in good shape. Judicious use of debt to improve returns can certainly be a good thing, although it does elevate risk slightly and reduce future optionality.

### The Key Takeaway

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. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So I think it may be worth checking this free report on analyst 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.

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.

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. Thank you for reading.

TheStreet.com

### The Three I's For Gold

Evidence suggests negative rates from central banks have had an effect on gold in recent years

Insider Monkey

### Is Graphic Packaging Holding Company (GPK) A Good Stock To Buy ?

Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers.

Thomson Reuters StreetEvents

### Edited Transcript of CRMD earnings conference call or presentation 14-Nov-19 9:30pm GMT

On today's earnings call, we will cover with you our continuing efforts to bring Neutrolin to the U.S. market as a catalog solution for hemodialysis patients first and then other market segments. For this call, Bob, Phoebe and Jack will participate. We'll be covering 4 topics: first, an update on the significant progress we've made on the regulatory pathway for Neutrolin.

Simply Wall St.

### Want To Invest In Genting Singapore Limited (SGX:G13)? Here's How It Performed Lately

Examining how Genting Singapore Limited (SGX:G13) is performing as a company requires looking at more than just a years' earnings. Below, I will run you through a simple sense check to build perspective on how Genting Singapore is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its hospitality industry peers. How Did G13's Recent Performance Stack Up Against Its Past?

Insider Monkey

### Hedge Funds Have Never Been This Bullish On Knowles Corporation (KN)

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers' equity positions as of the end of the three-month period that ended September 30, so let's proceed with the discussion of the hedge fund sentiment on Knowles Corporation (NYSE:KN). Is Knowles Corporation (NYSE:KN) a first-rate investment right now?

• Finance

### Federal probe points to untrained contractors for Minnehaha Academy blast

Two contractors moving gas equipment at Minnehaha Academy just before a deadly 2017 gas explosion lacked the training and authorization to do the work, according to a just-released federal report on the blast. The Star Tribune has a report on the findings released this week by the National Transportation Safety Board, which concluded that the explosion — which killed two people and demolished a large section of the school — likely "occurred when a pipe fitting crew disassembled piping upstream of a gas service meter." The NTSB said that two-person crew from Eagan-based Master Mechanical Inc. didn't have the licensing or training to work on the task of moving meters, and they weren't authorized to demolish existing piping. The agency could not determine how a natural gas line was opened during the procedure.

Yahoo Finance Video

### Shares of Ulta climb after reporting third-quarter results

Shares of beauty retailer Ulta popped in after-hours trade on Thursday, after the company released better-than-expected third-quarter earnings, with comparable sales increasing by 3.2%.

Thomson Reuters StreetEvents

### Edited Transcript of SUMR earnings conference call or presentation 13-Nov-19 2:00pm GMT

Good morning, and welcome to SUMR Brands Fiscal 2019 Third Quarter Conference Call. Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to your host, Chris Witty.

Investopedia

### Top 5 Positions in Warren Buffett's Portfolio

Warren Buffett is undeniably the most closely watched, highest-profile investor in modern history. Not surprisingly, investors relentlessly clamor to match his success by analyzing his portfolio, hoping to absorb even a tiny morsel of Buffett's investment genius. Despite his unparalleled success, Buffett's investment model has always been transparent, straightforward, and consistent.

Yahoo Finance UK

### Boris Johnson made a huge move that will anger Trump

UK prime minister Boris Johnson has followed France's footsteps by pushing ahead with a digital services tax that is likely to sting a range of US-based tech giants. The move is likely to anger US president Donald Trump, whose administration has slapped \$2.4bn (£1.85bn) worth of tariffs on French exports, in retaliation for the country imposing a 3% tax imposed on revenue of digital services that happen within France. "On the digital services tax, I do think we need to look at the operation of the big digital companies and the huge revenues they have in this country and the amount of tax that they pay,” he said.

• Finance
USA TODAY

### Ford workers break their silence on faulty transmissions: 'My hands are dirty. I feel horrible'

DETROIT – They knew the truth and kept quiet. Their secret wasn't a secret at all in engineering, product development, research, design or manufacturing within Ford Motor Co., say seven current and former employees who worked to develop and launch the Fiesta and Focus cars that would become known for defective automatic transmissions. My hands are dirty.

Bloomberg

### Toyota’s Biggest Problem Is Keeping Hybrid Car Models in Stock

“The only thing holding us back on hybrids is capacity,” Bob Carter, Toyota's North American executive vice president for sales, told reporters on Thursday at an event in Detroit. While many of its competitors are walking away from hybrids and plowing billions into battery-powered cars, the Japanese automaker has seen demand surge for its 14 gasoline-electric models. Toyota's hybrids accounted for 13% of total Toyota and Lexus brand sales in the U.S. last month and made up nearly a quarter of the volume for its top seller, the RAV4 compact SUV.

Reuters

### Canadian banks expect subdued 2020 after dismal quarter wipes \$15 billion of value

Canadian banks are bracing for another year of muted earnings growth after disappointing quarterly results erased about C\$21 billion (\$15 billion) from their market values in the past week and closed out the worst year for profit expansion since the financial crisis. Toronto Dominion Bank, Canada's largest bank by assets, and Canadian Imperial Bank of Commerce were the last of the top six lenders to report on Thursday. Both missed analysts estimates, sending shares sliding..

Autoblog

### Ford tells dealers not to advertise Mustang Mach-E under MSRP

Furthermore, conquest buyers are heading to Ford dealerships a year before the first of the electric crossovers are due on the market; a dealer outside Phoenix said two-thirds of the 47 people who've made reservations with him are new to his dealership, some also new to electric cars. In an attempt to keep customers happy once the traditional car shopping experience begins, CarsDirect reports that Ford wants to forbid dealers from advertising the Mach-E below MSRP. The revelation came out of a dealer bulletin, Ford explaining the restriction by saying it wants to "be competitive in the battery electric vehicle space by transacting in the way customers want to transact."

Insider Monkey

### Is Ford Motor Company (F) A Good Stock To Buy ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article we look at what those investors think of Ford Motor Company (NYSE:F).

Yahoo Finance Video

### Shares of Zoom plunge after third-quarter earnings release

While videoconferencing company Zoom beat on top and bottom lines and on quarterly guidance, slowing growth in the third-quarter caused shares to plunge in after-hours trade on Thursday.

Bloomberg

### Uranium Miners Rise as Trump Panel Urges U.S. Buy Domestic

The purchase of uranium by the U.S. Defense Department is among the recommendations being made by the U.S. Nuclear Fuel Working Group, comprised of cabinet level and other high-ranking officials, according to two people familiar with the matter who requested anonymity to discuss non-public deliberations. Energy Fuels Inc. surged 18% while Ur-Energy Inc. rose as much as 16% for the biggest increase for each company in two years. The task force was established to study ways to revive the U.S. uranium mining industry.

### Leidos wins \$1 billion FAA contract to modernize flight services

Leidos Holdings Inc. (NYSE: LDOS) will continue providing flight services for the Federal Aviation Administration under a new 15-year, \$1 billion contract, the company announced Tuesday. The Future Flight Services Program (FFSP) contract calls on the Reston contractor to help modernize and provide costs savings for flight services it provides for the FAA. Leidos has held a previous flight services contract, the Automated Flight Service Station (AFSS) contract, since 2005, when the FAA privatized flight service.

Simply Wall St.

### Is Now The Time To Put L3Harris Technologies (NYSE:LHX) On Your Watchlist?

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in L3Harris Technologies (NYSE:LHX). How Quickly Is L3Harris Technologies Increasing Earnings Per Share? As a tree reaches steadily for the sky, L3Harris Technologies's EPS has grown 18% each year, compound, over three years.

Simply Wall St.

### Introducing Baker Hughes (NYSE:BKR), The Stock That Slid 68% In The Last Three Years

Investing in stocks inevitably means buying into some companies that perform poorly. While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Insider Monkey

### Hedge Funds Getting Back In Momo Inc (MOMO)

We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Momo Inc (NASDAQ:MOMO). Momo Inc (NASDAQ:MOMO) shareholders have witnessed an increase in activity from the world's largest hedge funds lately.

GuruFocus.com

### Bayer and Teva Double Down on Worst M&A Deals of Decade

In a October article, Bayer (XTER:BAYN) was credited with making one of the worst corporate deals ever with its acquisition of Monsanto. Now, FierceBiotech has published a list of the worst 15 corporate buys over the past 10 years, with Bayer and Teva (NYSE:TEVA) cited twice. Biopharma companies have spent hundreds of billions of dollars on mergers and acquisitions over the last decade that changed the face of the drug industry and resulted in large layoffs, facilities being shut down, research and development programs being stopped and (for some companies) a burdensome pile of debt.

Bloomberg

### Eisai, Partner Biogen Gain as Alzheimer’s Drug Studies Revived

Biogen rolled out detailed trial data at the Clinical Trials on Alzheimer's Disease conference in San Diego on Thursday, marking a climax in a months-long saga that has seen patients' hopes dashed and revived. Biogen initially plummeted in New York trading Thursday, and then rebounded to close 3.4% higher. It was the first in-depth look at the experimental treatment, known as aducanumab, since the companies revived it in October.