Dayanand Menashi

The Truth Behind Accenture’s High Return on Equity

Sharebuybacks are neither irrelevant nor unusual. In fact they are very much relevant and we saw how it increased the ROE. My bottomline is as follows:

1. Let us say you are comparing Accenture with a company 'X'.

2. At the beginning of the year both have book value of $2bn. Accenture buys its own shares for $100 mn. And Company 'X' invests $100 mn in marketable securities.

3. Let us say by the end of the year the marketable securities and Accenture's stock appreciate by 10%.

So as far as an investor's point of view both have achieved the same result. But the ROE of Accenture is more than company 'X' because its book value has been reduced by 100 mn.

For calculating the ROE it is assumed that both have same net income.