How Has E-Trade’s Return On Capital Trended In Recent Years?

51.75
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ETFC: E*TRADE Financial logo
ETFC
E*TRADE Financial

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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NOPAT

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:

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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