One Time ROE (Return on Equity) measures the impact of transitory items on shareholders’ profitability. This ratio is informative about Recurring ROE (Return on Equity) for two reasons.
First it may indicate a bias in Recurring Income. For example, frequent write downs or disposal losses suggest that the firm uses aggressive accounting policies, implying that Recurring Income is overstated.
Second negative One Time Items increase future Recurring ROE (Return on Equity) by reducing equity the denominator of future ROE and increasing future income. For example DAC write down reduces future amortization, an OTTI (Other than temporary impairment) of investments increases future net gains and restructuring charges reduce future operating expenses.
One Time Return on Equity (ROE) is defined as follows:
First it may indicate a bias in Recurring Income. For example, frequent write downs or disposal losses suggest that the firm uses aggressive accounting policies, implying that Recurring Income is overstated.
Second negative One Time Items increase future Recurring ROE (Return on Equity) by reducing equity the denominator of future ROE and increasing future income. For example DAC write down reduces future amortization, an OTTI (Other than temporary impairment) of investments increases future net gains and restructuring charges reduce future operating expenses.
One Time Return on Equity (ROE) is defined as follows: