According to SimplyWallStreet.com, REA Group Limited (ASX:REA) outperformed the internet software and services industry on the basis of its ROE – producing a higher 26.9% relative to the peer average of 9.8% over the past 12 months. But what is more interesting is whether REA can sustain this above-average ratio. A measure of sustainable returns is REA’s financial leverage. If REA borrows debt to invest in its business, its profits will be higher. But ROE does not capture any debt, so we only see high profits and low equity, which is great on the surface. But today let’s take a deeper dive below this surface.
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