The net income is found on the company’s income statement. The dividend payout is obtained from the company’s cash flow statement. The total capital is calculated from the company’s balance sheet.
Dividends are a portion of a company’s earnings that corporations pay their shareholders. They’re almost always paid in cash, but they can also be paid in stock or other properties. [2] X Research source Companies can also choose to retain earnings (to invest back into the company), rather than paying dividends to shareholders.
The balance sheet for the company at the beginning of 2009 is shown in the middle column. Using the figures from the balance sheet at Dec 31, 2008, total capital is $330,067,000,000 (long-term debt) + $104,665,000,000 (total shareholder equity) = $434,732,000,000. Also note that only long-term debt is included, as short-term debt by definition is due within one year, so that the company does not have use of the money for the entire year in which earnings are made.
Look for high ROICs. The higher the ROIC, the better the company is at taking money and turning it into profit.
This may be a helpful analogy: Think about basketball players. You might think that a player who averages 15 points on 20 shots per game has a great game if he scores 30 points. But if you notice that he took 60 shots to get those 30 points, you might not think he had such a great game after all, because he was actually less efficient than usual in his shooting. [3] X Research source ROIC works the same way. In the basketball analogy, ROIC would be telling you how efficient a player is at scoring.
Regarding ROE, if you put in $1000 to start a business, borrow $10,000, and make $500 after one year, your ROE is a generous $500/$1000, or 50% per year. This seems too good to be true. Well, it is. The actual return on invested capital is $500/($1000+$10,000) = 4. 55%, a more reasonable figure. ROA is unreliable. That’s because of the difference between an asset’s cost and its market value at any given moment in time.
