公認会計士 依田康志事務所

According to Nikkei, a financial news paper, reported on July 3rd that an average ROE of Japanese listed companies recovered to 6.0% as of March 31, 2011, which is 2.1% better than the last fiscal year.
However an average ROE of US and European companies reaches over 10%.

It has been spoken that ROE of Japanese companies has been low.

I see two following aspects for the reason.

One is the high corporate tax rate.
The effective corporate tax rate in Japan is around 40%. US’s one is similar, but Europeans’ are around 30%.
Therefore the ROEs before tax are:
Japan ROE=6.0%/(1-40%)=10%
European ROE=10%/(1-30%)=14%
Although Europeans are higher, but Japanese comes close.
If Japanese gains as Europeans do, ROE has to be 10%/(1-40%)=16.7%, which is much higher.
Japanese industries’ leaders complain the government how high the tax rate is, and the calculation above realizes how high.

The other aspect I assume is pricing.
Many US and European companies with strong brands earn high margins.
Louis Vuitton or Mercedes may earn a lot of margins.

In the other hand, SONY, Panasonic, or Toyota is also a global brand but they do not earn high margins.
The variance of margins may lead to the variance of ROEs.

The value strategies of Japanese companies are not wrong.
It has been told that Japanese products have reasonable prices and good qualities. The lower margins of Japanese companies are realize by such low prices.
In the value strategies of Japanese companies, the values are not gained by capitals through ROE but by customers.
Capitals seem losing the values to be earned, but gaining the sustainable growth through the customer loyalty with low margins.