Ciba Gator

The Truth Behind Accenture’s High Return on Equity

Interesting angle, but I disagree with your conclusion that "from an investor's point of view both have achieved the same result."

From an investor's point of view, Accenture has returned $100 million of capital to them. They can then reinvest that elsewhere. If the investor can get 15% returns on an alternate investment, then they are better off. Second, Accenture cannot (would not) invest in marketable securities that return 10% -- they must invest in high quality (safe principal) instruments. Accenture is not an investment company and has no business trying to obtain high yields from marketable securities.

Bottom line: Investors are very sensitive to ROE because they want companies to produce high returns on the equity that has been entrusted to them. By returning capital to shareholders via buyback and still earning the same net income (as you state above), Accenture will earn a higher ROE, which (and this is the Important Conclusion) will be VIEWED AS MORE VALUABLE BY INVESTORS than if the company earned income on marketable securities.