What is usually an appealing way to try to increase a company’s Return on Equity (ROE)?

Repurchasing shares of common stock is often viewed as an appealing strategy to enhance a company’s Return on Equity (ROE). This approach reduces the number of shares outstanding, which can lead to an increase in earnings per share (EPS) if the company maintains or improves its net income. As the equity base shrinks due to the buyback, the same level of earnings now generates a higher ROE because it is calculated as net income divided by shareholders' equity.

This strategy can signal to investors that the company is confident in its financial health, as it suggests that management believes the stock is undervalued. Additionally, lowering the equity base through share repurchases can also improve financial metrics, making the company appear more attractive to investors.

The other methods, such as increasing operational costs, expanding product lines, or raising employee salaries, can complicate the financial picture in terms of net income or may not have a direct or favorable impact on ROE in the short term. For instance, increasing operational costs or employee salaries could lead to decreased net income unless counterbalanced by increased revenue, which wouldn't necessarily improve ROE. Expanding product lines might require significant upfront investment and could negatively affect ROE if the investments do not yield adequate returns immediately.