RoE to Personal ROI Calculator

Company Return vs. Investor Return

One of the most common mistakes for new investors on the Dhaka Stock Exchange is looking only at a company's **Return on Equity (RoE)**. While an RoE of 20% sounds fantastic, it only represents the return on the Book Value of the company.

The Price-to-Book (P/B) Penalty

If you buy the stock at a price much higher than its Book Value (NAVPS), your personal return will be lower than the company's RoE.
Formula: Investor ROI = Company RoE / P/B Ratio

Scenario Analysis:

• Stock A: RoE = 20%, P/B = 1.0. Your effective ROI is 20%. (A Bargain!)
• Stock B: RoE = 20%, P/B = 4.0. Your effective ROI is only 5%. (Overpriced?)

Why this matters for DSE Blue-Chips?

In Bangladesh, top-tier companies like Marico, Reckitt Benckiser, and Berger Paints often have incredible RoEs (sometimes 50%+). However, they also trade at very high P/B ratios (often 10x or more).

Using this calculator, you can see that even with a 50% RoE, if you pay 10 times the book value, your personal "Earnings Yield" is only 5%. If a safe bank FDR offers 9%, you must ask yourself if the extra risk of the stock market is worth a 5% yield.

How to use this information?

1. Compare with FDR/Sanchaypatra: If the calculated Investor ROI is lower than the risk-free rate in Bangladesh, the stock may be overvalued unless it has massive growth potential.
2. Find Hidden Gems: Look for companies with improving RoE that are still trading at low P/B ratios (close to 1.0). These are the stocks that create long-term wealth.
3. Margin of Safety: Always aim to buy stocks where the Investor ROI is at least 1.5x the bank interest rate.