Return on equity on it’s own is not a KPI, it is a just an indicator. To be a PI you have to measure the indicator against another metric. In this case you measure return on equity against the cost of equity or against a target value of return on equity.
Thanks, yes, always helpful to compare with the past, peers and other metrics.
Cost of Equity in Zimbabwe is very subjective and can be hard to estimate or draw conclusions from. What would you say the cost of equity would be for Stanbic?
To calculate the cost of equity for Stanbic or any other company in Zimbabwe, you'll need to consider the unique challenges of emerging market valuations. You can use the Capital Asset Pricing Model adjusted for country risk or the dividend growth model.
Thanks, yes. I was asking more about how you would apply CAPM, for example. Would you add a country risk premium for Stanbic, and if so, how much? Would you then apply the same premium to other banks?
When you use the textbook approach, you can end up with very high values, like over 25%, which makes all returns seem as if they are losing value. However, in practice, that is not really the case.
Also if a company has no option but to operate in Zimbabwe, then does a country risk premium make sense and if so at what level?
I'm also still waiting for a Response on CAPM and how they would substitute the components of the formula with actual numbers 😂😂😂😂... What would those numbers be 😂😂 y'all wanna kill me with laughter!
Return on equity on it’s own is not a KPI, it is a just an indicator. To be a PI you have to measure the indicator against another metric. In this case you measure return on equity against the cost of equity or against a target value of return on equity.
Thanks, yes, always helpful to compare with the past, peers and other metrics.
Cost of Equity in Zimbabwe is very subjective and can be hard to estimate or draw conclusions from. What would you say the cost of equity would be for Stanbic?
To calculate the cost of equity for Stanbic or any other company in Zimbabwe, you'll need to consider the unique challenges of emerging market valuations. You can use the Capital Asset Pricing Model adjusted for country risk or the dividend growth model.
Thanks, yes. I was asking more about how you would apply CAPM, for example. Would you add a country risk premium for Stanbic, and if so, how much? Would you then apply the same premium to other banks?
When you use the textbook approach, you can end up with very high values, like over 25%, which makes all returns seem as if they are losing value. However, in practice, that is not really the case.
Also if a company has no option but to operate in Zimbabwe, then does a country risk premium make sense and if so at what level?
I'm also still waiting for a Response on CAPM and how they would substitute the components of the formula with actual numbers 😂😂😂😂... What would those numbers be 😂😂 y'all wanna kill me with laughter!