Evaluation Method of Return on Equity

Tohru Furuyama

Chapter 10 in Management Control Systems for Strategic Changes:Applying to Dematurity and Transformation of Organizations, 2020, pp 149-164 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study seeks to examine the necessary conditions to raise Japanese companies’ return on equity (ROE), which has been under the effect of a declining trend since the 1980s. Thus, I determine which evaluation method would be most suitable for this purpose. In general, ROE is decomposed and evaluated by the DuPont model. However, this model does not accurately measure the contribution of leverage in ROE, leading to an incorrect evaluation. In this paper, I investigated the differences between the DuPont and the Moriwaki models. The results show that there are significant differences in the perception of leverage effects. We can say that the Moriwaki model is a more appropriate model to recognize the contribution of leverage effect to ROE.

Keywords: Business Portfolio Strategic; Risk Spreading; Subscription Business; Dematurity Strategy; Business Structure Transformation; Asset Recycling; Service Industries; Non-Profit Organizations (search for similar items in EconPapers)
JEL-codes: D23 L2 M41 (search for similar items in EconPapers)
Date: 2020
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