ROE finance metrics in U.S. consumer discretionary stocks reached 12.6% in May 2024, supported by resilient retail demand. However, inflationary pressures may cap future ROE gains, with projections indicating a range-bound performance around 12–13% for the rest of 2024. Virtually all companies need money to invest in the business, to grow profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first and second cases, the ROE will reflect this use of cash for investment in the business. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. Thus the use of debt can improve ROE, albeit along with extra risk in the case of stormy weather, metaphorically speaking. Unfortunately, that's sub-optimal. However, a low ROE is not always bad. If the company's debt levels are moderate to low, then there's still a chance that returns can be improved via the use of financial leverage. A company with high debt levels and low ROE is a combination we like to avoid given the risk involved. To know the 4 risks we have identified for RHI Magnesita visit our risks dashboard for free. Major trial successes could drastically lift these returns in the next fiscal year.
