A Closer Look At RATH Aktiengesellschaft's (VIE:RAT) Impressive ROE
One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. We'll use ROE to examine RATH Aktiengesellschaft (VIE:RAT), by way of a worked example.
Over the last twelve months RATH has recorded a ROE of 12%. Another way to think of that is that for every €1 worth of equity in the company, it was able to earn €0.12.
Check out our latest analysis for RATH
How Do You Calculate ROE?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
Or for RATH:
12% = €6.3m ÷ €50m (Based on the trailing twelve months to June 2019.)
Most know that net profit is the total earnings after all expenses, but the concept of shareholders' equity is a little more complicated. It is all earnings retained by the company, plus any capital paid in by shareholders. You can calculate shareholders' equity by subtracting the company's total liabilities from its total assets.
What Does ROE Mean?
Return on Equity measures a company's profitability against the profit it has kept for the business (plus any capital injections). The 'return' is the amount earned after tax over the last twelve months. That means that the higher the ROE, the more profitable the company is. So, all else equal, investors should like a high ROE. That means ROE can be used to compare two businesses.
Does RATH Have A Good ROE?
By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. Pleasingly, RATH has a superior ROE than the average (10%) company in the Basic Materials industry.
WBAG:RAT Past Revenue and Net Income, January 29th 2020
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That is a good sign. We think a high ROE, alone, is usually enough to justify further research into a company. For example, I often check if insiders have been buying shares.
How Does Debt Impact Return On Equity?
Most companies need money -- from somewhere -- to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. That will make the ROE look better than if no debt was used.
Combining RATH's Debt And Its 12% Return On Equity
While RATH does have some debt, with debt to equity of just 0.78, we wouldn't say debt is excessive. Its very respectable ROE, combined with only modest debt, suggests the business is in good shape. Conservative use of debt to boost returns is usually a good move for shareholders, though it does leave the company more exposed to interest rate rises.
In Summary
Return on equity is useful for comparing the quality of different businesses. A company that can achieve a high return on equity without debt could be considered a high quality business. All else being equal, a higher ROE is better.
But when a business is high quality, the market often bids it up to a price that reflects this. The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too. Check the past profit growth by RATH by looking at this visualization of past earnings, revenue and cash flow.
Story continues
But note: RATH may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
Ten 2020 Resolutions for a Data Center Manager
'Tis the season when we all—well most—set resolutions for the new year. I did some thinking over the holidays and came up with a list that data center manager’s might be able to relate to. So, if you haven’t yet developed your list for 2020, need to add a couple more, or just want to compare, here are 10 suggestions. Hopefully, you’ll walk away with a nugget or two you can use.
1. Document 2019 Wins! We get so busy looking ahead, we forget to take a bit of time to document our wins from the previous year. Hopefully, you have been tracking them during the year (see #10), and all you’ll need to do is organize them. Besides being fun, who doesn’t like to talk about wins? It's rewarding and documenting them is important for your career. This data can be used during reviews or if you are searching for a new opportunity.
Be realistic and make sure you quantify wins. If the impact can be financially quantified, that's important as dollars are a unit of value understood universally. However, also look at significant events, and ascertain if the impact is broader than it appears. For example, you may have replaced an end-of-life UPS with a new one. In addition to successfully completing a major project with no downtime, you have increased availability (put a number to that, hours and potentially financial losses avoided), possibly right-sized (saving money on capital and operating expenses), and improved efficiency (additional operating savings).
2. Plan to Win. Ask yourself these questions: Have I really invested enough time to develop a comprehensive plan for 2020? Have I finished it completely, or is it only 75% done? Have I enlisted others (direct reports, coaches, management, financial analyst) to help, review, and/or provide advice? Does my plan encompass all aspects of me and my team’s responsibilities? Does it document assumptions that I can share with my management to help verify that it is aligned with my organization’s business direction? Does my plan indicate time frames and specific dates? Finally, have I allowed time for reviewing my plan on a monthly basis?
3. Own Your Metrics. We all recognize the importance of metrics. However, we are often not sufficiently controlling the conversation. There are two high-level categories of metrics:
• Organization/company assigned metrics. They are meaningful because they are dictated and should be valuable to your organization.
• The metrics you have developed and use. Most often, your company, unless it is in the business of delivering IT, will not have metrics that provide sufficient insight into your data center operations. You should use them and communicate their value to the organization.
What makes a good metric? Of course, it must be meaningful. It also must be easy to produce and track; otherwise, it will fall by the wayside after some time.
Consider granularity of metrics to provide more insight. You likely have an overall availability metric, but you can provide further insight by having category components such as:
• Infrastructure – IT• Infrastructure – Facility• Applications• Network
Some of your metrics should involve financial parameters. Consider determining operational costs of computing using the metric MRC /kW (Monthly Recurring Cost). That’s a common way that colocation providers quote their services.
Ultimately, metrics should stimulate improvement. For example, have metrics for each major system comparing current age to normal end-of-life. This prompts regular conversations with management about budgeting for replacements within an appropriate time frame.
4. Don’t Go It Alone. Leverage internal and external resources for your organization. Internally, if you don’t have one already, seek at least one coach. Coaches are often business centric; but in the data center world, you should consider a coach or two on the technical side. We cannot know everything, so play it smart. Additionally, make sure you leverage your team. New or younger members of your team often provide a fresh perspective that should be considered.
From an external perspective, you likely have trusted vendors who serve your organization. Your existing vendors are constantly receiving information from the companies they represent. Additionally, they are out in the data center ecosystem and seeing a lot. Maybe one of their customers is undertaking an initiative that you should consider.
AFCOM and other associations provide global and national perspectives through conferences, regional labs, and communications. Many cities have local chapters enabling you to compare practices among your peers. Get involved, and be sure to attend Data Center World - 2020 in March.
Tad, along with fellow DCI Board Member Bill Doty, will present a session, "Leveraging Vendor Management to Improve Resiliency - The Hard and Soft Sides," at DCW on Monday, March 18.
5. Stay Current. It is vital to stay current with technology and best practices. Your management is counting on you. This requires rigor, so think of this like your exercise program. You must do it on a consistent and frequent basis. Pick a few periodicals that are delivered to your inbox every day. Set up a different email address if it helps. For me, I find it best to spend 20–30 minutes at the start of a day. It could be over lunch or in the evening for you. Set an alarm and stick to it.
Consider what periodicals, blogs, etc. work best for you. The AFCOM Journal, and Data Center Knowledge are both great valuable overall sources. Also, consider what your CIO and CEO might be reading including WSJ, WSJ CIO, and CIO. Make sure you are subscribed to your own company/organization’s mailing list, blog, and LinkedIn. Set up a Google alert.
Because there are many sources of information, assign different ones to your team members and ask them to share any valuable information they learn.
6. Invest in Yourself and Your Team. Fight for training time and financial support. Explain to management the importance of investing in this arena. Leverage HR for help in assembling your recommendations. Consider not only technical but management training. I took a course in time management last year and discovered some areas of inefficiency in my workdays.
Invest in team-building exercises. During the course of the year, the team will be challenged. A more cohesive and supportive team will better endure the storms. Make sure some of these are fun! Top Golf, or axe throwing (check with HR) are fun and popular. Be more creative than the post-work drink.
7. Leverage Data. The infrastructure supporting your data center is constantly producing data. Some of the data you will use for your metrics, some data will define new aspects or even trends that are occurring in your ecosystem. Inquire with your vendors as to what data can and should be captured and what data should be populating dashboards the team needs to be watching.
8. Get My Monitoring House in Order. Are your monitoring systems providing sufficient information to allow your team to fully comprehend your data center? Is this the year that you invest in DCIM? Many vendors offer their packages in modules which lowers the cost of the initial investment. And now you can purchase monitoring via a cloud subscription significantly reducing a possible hefty initial expense. If you already operate one, are you getting the best use out of it? Is further training required? Does your dashboard really reflect what it should?
Monitoring of equipment works great if your equipment contains a NICs (Network Interface Card) or something similar. If your equipment is not “smart,” then some level of instrumentation must be deployed. That might involve installing CTs (Current Transformers), sensors, etc. For example, you may want to know more precisely about the fuel level in your generators.
As camera systems continue to decline in price and become easier to install, consider deploying additional systems in key locations. Having visibility of support systems such as generators, heat rejection equipment, switchgear, UPS and EPOs provide an additional level of security and are instrumental in incident reconstruction.
Here’s a small but important tactical task: Make sure all the clocks on all equipment are set to the proper date and time. It’s great that everything has a clock for monitoring events but is extremely challenging when they all reflect a different time if you have an incident. You will be very grateful you took 30 minutes at the beginning of the year to do this.
9. Review Your Maintenance Contracts. Typically, you renew your maintenance contracts annually. Invest some time to ensure they adequately reflect your data center’s current state. Did physical aspects, of the data center change—quantity or type of equipment, size of data center, etc.? Does the age of your equipment justify a change to the frequency or scope of maintenance work? Have all your maintenance vendors submitted an updated MOP that reflects current state, physically or operationally? Do they differentiate between minor and major PMs? They should.
Is there an annual increase in contract cost? Is this warranted? Some contracts include a 3% - 5% annual increase that tracks higher than current inflation rates.
10. Document your 2020 Wins! Now, we’ve come full circle. Just as you did for 2019, document all your wins throughout the year!
The best possible scenario is for us to control our own destinies. Setting resolutions, a.k.a. goals, gives us the best shot at doing so. Best wishes for a safe, sane, and sustainable 2020!!
Tad Davies, a member of AFCOM's DCI Board, has focused on data center strategies and consults regularly with data center and executive teams for more than 30 years. He leads Bick Consulting Services, a Bick Group business unit. He advises clients on business-centric strategy issues such as consolidation, colocation selection, build vs. buy, and cost modeling. Tad also provides advice on facility-centric strategy issues, including risk assessment, new data center programming, owner’s representation, and energy improvement.
3 Psychology Tricks Marketers Use to Make You Buy
We marketers have something in common with magicians. Prestidigitators and product promoters are both students of human behavior. While magicians take advantage of distraction, marketers tap into three other psychological traits.
Unlike magicians, we marketers have no code that prevents us from revealing our secrets. Tips and tricks blogs on growth hacks must number in the tens of thousands by now. So, I don’t fear being ostracized from the CMO club. Here are three of the ways marketers use their knowledge of human behavior to reach or convince you.
Flowers and Reciprocity
Humans are wired to reciprocate. When given a gift, even if we didn’t ask for it, we feel grateful and inclined to do something in return.
An iconic example of this principle in action dates to the 1970s when it became common in city centers and airports to have a robed member of the Hare Krishna religious sect hand a flower to a passerby. After taking this small and thoughtful gift from a smiling believer, the receiver would then be asked for a small donation, sometimes in return for a religious pamphlet. It helped Hare Krishna raise money and spread the word.
Marketers today take advantage of reciprocity in many ways. Maybe you have received in the mail custom return address labels from a charitable organization, asking for a donation. Right out of the Hare Krishna playbook. You feel guilty if you don’t donate because you are wired for reciprocity.
In B2B, marketers are increasingly sending small gifts in the mail to prospective buyers. I’ve received enough cookies, chocolate, and wine over the years to throw a large dessert party. These gifts are always followed by an email or phone call from a sales development representative. They ask if I’ve received the gift and would be open to a phone call or meeting to discuss buying their product. Reciprocity.
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Price and Fear
Have you ever walked into a boutique only to find there are no prices on anything? If you are like most people, you get a little trepidacious: What if I get talked into buying a $500 t-shirt?
Software marketers, like me, understand this fear of being taken. When we sell software-as-a-service (SaaS) online, we do one of two things. If we are selling low- to mid-priced packages, we will typically show the various options side by side so that the buyer can decide what they want and – hopefully – upsell themselves to a higher-priced plan based on additional features. This transparency removes fear from the buyer and allows them to upsell themselves.
In the case of more expensive, premium packages – often named ‘Enterprise’ or something similar – marketers fear prospective customers will go away if they get sticker shock on the first interaction. What to do?
Marketers will show the price of the lower-priced packages, but ask the buyer to call or fill in a form to get a quote for the higher-priced one. This is an application of a technique called price anchoring, which builds on the tendency of the buyer to rely on the first piece of information provided in a transaction. Seeing the lower-priced plans puts the buyer at ease. The buyer will, in their mind, assume a slightly higher price for the premium package, thereby removing the fear of the unknown. (Note, price anchoring can also be used to sell a mid-priced product, which seems like a better deal next to a premium product.)
Affiliates and Trust
I recently wrote about my YouTube infatuation. To help educate myself, I spent a lot of time watching tutorials on video production – how to light, how to record audio, how to get the best video recording and the like. I learned a lot.
And it is common in these videos for the YouTuber to put a bunch of hyperlinks to sites offering the cameras or mics or lights that they were demonstrating. How helpful. And how profitable.
You see, marketers know that you will trust the recommendations of those who you trust. After someone has spent ten or twenty minutes teaching you something, you tend to trust them. Those links the YouTuber put in the description are customized to them and known as ‘affiliate links.’ If you click on them and happen to buy the piece of equipment, that YouTuber affiliate earns a commission. Some YouTubers reveal that they are an affiliate, typically in the video description, but some do not. Sometimes you can tell by looking at the URL once on the product vendor’s page. As a buyer, you just need to understand the motivations of the YouTuber and factor it in before you buy.
Now that you know what marketers are up to, you will no doubt see applications of these three tricks techniques all over the place. We marketers are not miracle workers or magicians, just students of human behavior.
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