Ecovyst Inc. and Crawford & Company have reported their Return on Equity (ROE) for the trailing twelve months to September 2023, falling short of their respective industry averages.
Ecovyst Inc. reported an ROE of 9.2%, underperforming the Chemicals industry average of 15%. This figure indicates a sub-optimal performance, as the company generated just $0.09 in profit per $1 of shareholder equity. The high debt-to-equity ratio of 1.28 suggests that Ecovyst relies heavily on debt to enhance returns, a strategy that has not resulted in an optimal ROE, thereby potentially increasing investment risk.
Crawford & Company reported an ROE of 10%, which is just below the Insurance industry average of 12%. Each dollar of shareholders' equity at Crawford generates $0.10 in profit. The company's debt-to-equity ratio stands at 1.34, indicating a significant reliance on debt to boost returns. This high leverage, combined with a relatively low ROE, may reduce its appeal to investors.
Capital for growth can come from share issuance, retained earnings or debt. While debt can boost ROE, it also carries risks and can limit future options. Therefore, alongside ROE, factors like profit growth rates and market expectations as per analyst forecasts are crucial in assessing a company's performance.
ROE serves as a comparative tool for evaluating different companies' business quality. High-quality businesses typically achieve higher ROEs without significant debt levels. Among companies with comparable debt-to-equity ratios, the one with a higher ROE is generally more desirable.
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