A question I sometimes hear from people is why some companies are able to get outrageous RoE. Up to 99.9%. Unlike what people think, having a high RoE is actually a product of a bad past, in the great sense of it all.
Return on Equity is net profit/ Shareholder’s equity. And whatever your net profit is, your shareholder’s equity will increase with subsequent years, therefore by the end game, it is very difficult to have a high RoE, because you have so much stockpiled equity. In fact a successful company has trouble keeping up their RoE.
But what happens if a company had difficult years? To the point they had a negative equity, due to big losses in several years?
For example, a succesful company with $30k net profit and an accumulated $200k in equity would have a 15% RoE.
But a company that had a $10k net profit, but their accumulated equity was only $1k ($1000) because they were in the negative for years and just rought their RoE back up. The RoE would start hitting that 99.9%.
Just something to note.. while high RoE is amazing.. it’s usual background is a checkered past. Any company that is doing decent, won’t realistically have RoE higher than 50%, and most likely will not sustain it.
As a new semester of Glo-Bus approaches, I often get many emails from people who are interested in Glo-Bus Simulation Help. Glo-Bus is a particularly difficult game to play due to it’s simplicity. It can be safely said that after about 5 years, it is very difficult to change the hierarchy within the Industry. Any advantages your company could have gained, is no longer feasible to attain after about halfway through the game. This makes Glo-Bus very difficult to save if you have worked your way into a bad situation. Truly, if you are 3 years into a Glo-Bus game, and you are not doing well, seek out help immediately, or you may reach a point where it will be difficult to turn back the clock.
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