Companies’ return on equity

Many companies quoted on the Nigeria Exchange Group record low return on equity with the exception of MTN Nigeria, Nestle, Glaxo, Dangote Cement, Honeywell, Dangote Sugar, Stanbic IBTC, Okomu, Presco and BUA Cement. Our research shows that MTN Nigeria has return on equity record of 117 percent, Nestle 105 percent, Glaxosmithkline 44.4 percent, Dangote Cement 25.5 percent and Honeywell 27.7 percent. Others with relatively high ROE are Okomu Oil 23.2 percent, Presco 23.1 percent and BUA Cement 19.1percent.

In carrying out our research, we note that companies have different peculiarities and it would be inappropriate to compare companies across sectors. MTN, for example operates in an industry where marginal efficiency of capital is high. Generally, low equity capital results in high ROE.

Another example is Nestle which is a matured company that require low equity capital injection. However, given it’s market leadership position, brand loyalty, operational efficiency and low average, drive for profitability without proportionate increase in capacity leads to high returns on equity.

Comparing companies within the same industry,we picked Dangote Cement and BUA Cement. We note that Dangote Cement has better return on equity than BUA Cement bearing in mind that BUA Cement has total shareholders’ equity of N398 billion. On the other hand, Dangote Cement has shareholders’ equity of N957 billion and more profitable than BUA Cement