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Author: Calabogie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 36706  
Subject: Re: ROE Date: 7/20/2001 1:21 PM
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Even though I fear that I will soon be known for my really stupid questions, here's another one. I am looking at a company with solid FA, except that last years ROE decreased form its 5 yr. av. I looked at the financial statements to try and determine why. The only thing I can find is that the company decreased its debt big time last year. Does debt retirement figure in lowering ROE? I told you it was dumb.

That is NOT a dumb question! It's an excellent question. A link to the definition of ROE is: for those who don't know the term.

Debt retirement affects the bottom line. Interest payments, tax write-offs, etc are all calculated along with all the other figures. If they retired a substantial amount of debt, they had to do it with cash from somewhere. That cash would be included as outgoing (payable) instead of incoming (receivable) for the year I would suspect. I'm not an accountant so I don't know exactly how it works but in essense, it might just be that they extinguished a lot of debt at the cost of cash-on-hand and/or revenues. That would affect ROE.

Hope that helps but I won't stand behind it. :) Besides, you didn't mention the company you're referring to so I'm not sure where to look.
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