How I calculated my investment return (ROA & ROE)

Last week after I uploaded article about my investment return of year 2017,
someone messaged me through my FB page,
asking me how my investment return ROA=24.9%, ROE=40.5% are calculated,
so today I am going to explain it.

Before I explain it by using shares,
I will use property investment to explain,
so that is easier to understand for most of the people.

Let's say you bought a property for RM500K,
you paid RM50K for down payment, (ignoring all other fees to make it easier.)
later you sold it at RM600K,
so you earned RM100K. (ignoring all the selling fees for simplification)

So now the question is........
how much money you used to earn this RM100K?

Some of the people will say since I only paid RM50K for down payment,
the rest RM450K was borrowed from the bank,
so is not my money,
at the end I only used RM50K to earn RM100K, my investment return is 200%.

Since ASSET = LIABILITIES + EQUITY，
RM500K = RM450K + RM50K，
RM50K(EQUITY) was used to earn RM100K，
so ROE is 200%.

However,
some people will say NO NO NO!
Actually you used RM500K property to earn that RM100K,
so your investment return is only 20%.

Since ASSET = LIABILITIES + EQUITY，
RM500K = RM450K + RM50K，
RM500K(ASSET) was used to earn RM100K，
so ROA is 20%.

As conclusion,
you earned RM100K, but ROA=20%，ROE=200%.

Back to share investment.

Let's say now I have RM200K value of shares,
then I used SMF to borrow another RM100K to invest at more shares,
and now I have total value of RM300K of shares asset.

ASSET = LIABILITIES + EQUITY，
RM300K = RM100K + RM200K.

Let's say at year 2017 I earned RM75K,
So again the question ........
how much money I used to earn this RM75K?

Some of the people will say since I only paid RM200K for the original shares,
the rest RM100K was borrowed from the bank,
so is not my money,
at the end I only used RM200K to earn RM75K, my investment return is 37.5%.

Since ASSET = LIABILITIES + EQUITY，
RM300K = RM100K + RM200K，
RM200K(EQUITY) was used to earn RM75K，
so ROE is 37.5%.

However,
some people will say NO NO NO!
Actually you used RM300K to earn that RM75K,
so your investment return is only 25%.

Since ASSET = LIABILITIES + EQUITY，
RM300K = RM100K + RM200K，
RM300K(ASSET) was used to earn RM75K，
so ROA is 25%.

This is the difference between ROA and ROE.

Basically,
you will not have this problem if you don't borrow money to invest,
because if LIABILITIES is 0,
then ASSET = EQUITY.

So ROA?
Or ROE?
Or BOTH?

Investment is about doing own thinking, making own decision.

Thanks for reading.

I don't provide any buying/selling suggestion above,
please make your own investment decision and be responsible with it.

Recent articles :
Why did I use SMF for my investment
When my investment capital achieved 100K for the first time....
AJINOMOTO 2nd quarter 2018 financial report
Is mainstream thinking really good for everyone?
Cocoland 3rd quarter 2017 financial report


Other links:
List of articles of year 2017
My investment return for year 2017
My self-introduction article

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My Twitter : @TheCellist86