ROE should be based on start of year equity
Current SSGPlus uses end of year equity vice start. This distorts the intended relationship of the metric for our analyses and in some cases leads to wrong inferences re management effectiveness.
5
votes
Bob Houle
shared this idea
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Be aware that using ‘Beginning Year Equity’ or ‘Average Equity’ will usually raise the % Earned on Equity number. Using ‘Ending Year Equity’ is easier to understand how to calculate and is a more conservative number. If you’re one of those people that want to use a hard number of ‘minimum of 15% % Earned on Equity’ then realize you’ll meet that number easier by using ‘Beginning Year Equity’.
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Ghanashyam Patel
commented
yes, ROE should be calculated based on Equity at the start of new year. May be some one from NAIC can check into this and correct it.
