Based on my past practical experience, real estate developers usually evaluate any real estate development projects (in short "projects") by examining "Internal Rate of Return" (in short "IRR") of projected cash flow analysis, rather than appraising "Project ROE" (in Chinese "项目ROE"), of which the reasons was illustrated by following example of 3-year development periods:
Assume that one project company was 100% owned by the developer to which developer injected capital of 20 Mn, and the net profit margins of each fiscal year (in short "FY") were equal to net cash flow of each FY.
Please be reminded that all figures quoted below were for illustration purpose, of which the reasonableness should not be questioned.
Net Cash inflow/(outflow)'s Data:
initial time: (40) Mn
at 1st FY end: (-10) Mn
at 2nd FY end: 100 Mn
at 3rd FY end: 100 Mn
Then, the "Project ROE" of 1st, 2nd and 3rd FY would be -50% (-10/20), 500% (100/20) and 500%, so "Project ROE" (in Chinese "项目ROE") does not seem to be a reliable project appraisal tool due to its fluctuating numerical pattern supported by previous example.