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Wednesday, December 16, 2020 9:48:11 PM
By: Simply Wall St | December 14, 2020
Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). By way of learning-by-doing, we'll look at ROE to gain a better understanding of Crown Castle International Corp. (REIT) (NYSE:CCI).
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Crown Castle International (REIT) is:
8.0% = US$756m ÷ US$9.5b (Based on the trailing twelve months to September 2020).
The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.08 in profit.
Does Crown Castle International (REIT) Have A Good Return On Equity?
Arguably the easiest way to assess company's ROE is to compare it with the average in 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, Crown Castle International (REIT) has a better ROE than the average (5.4%) in the REITs industry.
That is a good sign. Bear in mind, a high ROE doesn't always mean superior financial performance. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk. To know the 3 risks we have identified for Crown Castle International (REIT) visit our risks dashboard for free.
How Does Debt Impact Return On Equity?
Most companies need money -- from somewhere -- to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the first and second cases, the ROE will reflect this use of cash for investment in the business. In the latter case, the use of debt will improve the returns, but will not change the equity. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same.
Crown Castle International (REIT)'s Debt And Its 8.0% ROE
Crown Castle International (REIT) does use a high amount of debt to increase returns. It has a debt to equity ratio of 2.01. Its ROE is quite low, even with the use of significant debt; that's not a good result, in our opinion. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it.
Conclusion
Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. In our books, the highest quality companies have high return on equity, despite low debt. If two companies have the same ROE, then I would generally prefer the one with less debt.
But when a business is high quality, the market often bids it up to a price that reflects this. Profit growth rates, versus the expectations reflected in the price of the stock, are a particularly important to consider. So I think it may be worth checking this free report on analyst forecasts for the company.
Read Full Story »»»
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Recent CCI News
- BOOTS CAPITAL HIGHLIGHTS CROWN CASTLE'S SIGNIFICANT DESTRUCTION OF SHAREHOLDER VALUE AND FAILED OPERATIONAL STRATEGY DUE TO INEFFECTIVE LEADERSHIP • PR Newswire (US) • 04/22/2024 08:26:00 PM
- Crown Castle Issues Statement Regarding Ted Miller's Latest Attempt to Disrupt the Company's Momentum • GlobeNewswire Inc. • 04/19/2024 08:15:16 PM
- Crown Castle Reports First Quarter 2024 Results and Maintains Outlook for Full Year 2024 • GlobeNewswire Inc. • 04/17/2024 08:15:30 PM
- Delaware Court of Chancery Grants Expedition and Discovery in Hearing on Company's Last-Minute Expansion of Board • PR Newswire (US) • 04/16/2024 01:29:00 PM
- Ted B. Miller Statement on Crown Castle Appointment of Steven J. Moskowitz as President and Chief Executive Officer • PR Newswire (US) • 04/11/2024 03:16:00 PM
- Crown Castle Highlights Actions Underway to Create Stronger and More Valuable Company • GlobeNewswire Inc. • 04/11/2024 11:23:01 AM
- Crown Castle Appoints Tower Industry Veteran Steven J. Moskowitz as President and Chief Executive Officer • GlobeNewswire Inc. • 04/10/2024 08:15:48 PM
- Crown Castle Announces First Quarter 2024 Earnings Conference Call Details • GlobeNewswire Inc. • 04/03/2024 08:15:00 PM
- CROWN CASTLE CO-FOUNDER TED B. MILLER FILES PRELIMINARY PROXY MATERIALS • PR Newswire (US) • 03/28/2024 03:52:00 PM
- Crown Castle Issues Open Letter to Shareholders • GlobeNewswire Inc. • 03/25/2024 11:45:07 AM
- Crown Castle Deserves Better: An Open Letter to Shareholders from Crown Castle Co-Founder Ted B. Miller • PR Newswire (US) • 03/13/2024 10:13:00 PM
- Form DFAN14A - Additional definitive proxy soliciting materials filed by non-management and Rule 14(a)(12) material • Edgar (US Regulatory) • 03/07/2024 10:04:44 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 03/06/2024 09:36:44 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 03/05/2024 09:15:12 PM
- Crown Castle Comments on Self-Serving, Unfounded Litigation Brought by Ted Miller • GlobeNewswire Inc. • 03/05/2024 02:58:38 PM
- Form DFAN14A - Additional definitive proxy soliciting materials filed by non-management and Rule 14(a)(12) material • Edgar (US Regulatory) • 03/04/2024 09:07:05 PM
- Crown Castle Co-Founder Ted B. Miller Issues Statement on Crown Castle's Rewrite of Cooperation Agreement with Elliott • PR Newswire (US) • 03/04/2024 05:02:00 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 03/04/2024 01:30:44 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 03/04/2024 01:30:15 PM
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- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 02/28/2024 09:34:07 PM
- Form DFAN14A - Additional definitive proxy soliciting materials filed by non-management and Rule 14(a)(12) material • Edgar (US Regulatory) • 02/28/2024 09:01:30 PM
- Crown Castle Co-Founder Ted B. Miller Files Lawsuit to Invalidate Crown Castle's Unlawful Cooperation Agreement with Elliott • PR Newswire (US) • 02/28/2024 03:20:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 02/23/2024 11:28:23 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 02/23/2024 10:24:04 PM
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