No. of Recommendations: 9
Indeed, can't trust it.
Goggling "pru roe" we see this: "During the past 13 years, Prudential Financial's highest ROE % was 15.71%. The lowest was -3.68%. And the median was 7.71%."
I don't know how VL could be that far off. Maybe a transcription error?
It appears to be because of the wild swing in shareholders' equity at PRU.
At end 2021 net worth was $61.88 billion. At end 2021 it dropped to $16.25 billion, primarily because of a $41.1bn drop in accumulated comprehensive income.
If book drops by a factor of four for any company, ROE (naively calculated) rises by a factor of four.
So that part seems right: a normal level earnings would suddenly create a huge ROE. There is no inherent conflict between a high recent number and a 13 year average of 16% that you found elsewhere.
Separately, it looks like they are treating some part of the GAAP net income as exceptional and therefore to be excluded.
GAAP net was a loss in 2022 and (I believe) TTM, but VL seems to have only positive numbers.
So I'm not sure whether it's an adjustment they decided to do that makes some sense, or an error.
The 2022 net profit they show is fairly close to the 2021 figure, so it's not a random digit scrambling.
The equity drop figure seems right, and the income adjustment could conceivably make sense, so I wouldn't assume it's a flat out mistake without digging more deeply.
In any case, the ROE is going to give you an odd result without some sort of smoothing or adjustment to shareholders' equity.
This is a problem with a naive ROE calculation.
Ideally, you'd work through each firm that's a candidate and check it for sanity before putting money into it.
If book or income are really unusual going into the most recent ROE calculation, you'll get an odd number, especially when book is near zero.
(one of the oddities of this is that firms with persistently negative book but positive earnings should be shown as having an arbitrary but high ROE, like 100, not a negative one)
Without manual checking for sanity, the safest approach would be to use the lower of the TTM and five year average figures.
You'd skip some good firms that just had one bad year, but you'd eliminate the great majority of the ones inappropriately passing due to a quirk of ROE calculation.
The FT.com equity screener has a data field for five year average ROE. I wish VL, or one of my other databases, had that.
Jim
