How Has E-Trade’s Return On Capital Trended In Recent Years?
The mortgage crisis of 2009 led to the accumulation of large amounts of bad debt on E-Trade’s balance sheet. This necessitated creation of large provisions of loan losses, resulting in operating losses of $524 million. At that time, the company had a debt load of $2.5 billion on its books.
Over the years the company has managed to deleverage its balance sheet, thus reducing its provisions for loan losses. This led to an improvement in E-Trade’s operating income to $633 million and reduced its debt to $1.4 billion in 2014. Consequently, the company’s return on capital (ROC) improved from 0.2% in 2009 to 7% in 2014.
However, in 2015, E-Trade’s operating profit fell to $261 million, due to a loss on sale of securities of $331 million. The company managed to bring down its debt further to under $1 billion by the end of 2015. Correspondingly, the company’s ROC stood at 6.4%, slightly lower than in 2014.
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This improvement in ROC is an indicator of E-Trade’s ability to convert its capital into profits for its stakeholders. It reflects the company’s efficiency at allocating the capital under its control to profitable investments.
Have more questions about E-Trade Financial? See the links below:
- What’s E-Trade’s Revenue And EBITDA Breakdown In Terms Of Different Operating Segments?
- How Has E-Trade’s Revenue Composition Changed Over The Past 5 Years?
- By How Much Has E-Trade’s Revenue & EBITDA Grown In The Last Five Years?
- What Is E-Trade’s Fundamental Value Based On Expected 2016 Results?
- How did E-Trade’s EBITDA Decline Outpace Revenue Decline In 2015?
- How Is E-Trade Expected To Grow In The Next Five Years?
- How much will E-Trade’s Revenues Grow If Fed Hikes Rates To 4% By 2018?
- How Did E-Trade’s Segment Revenues Change Over The Last Five Years?
- How much will E-Trade’s Revenues Grow If Trade Volumes Increase By 25% In 2018?
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for E-Trade
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