Profitability Ratios
Legendary investor Warren Buffet is often quoted as advising investors to analyze purchasing a company’s shares as if you were buying the whole company.
One of the items you’d probably evaluate if you were actually buying a company is your return on investment.
return on investment = annual profits/total investment
For instance, your return on investment is 10 percent if you bought a company with a $100,000 cash investment and you made $10,000 in profits annually (10,000/100,000).
Return on Equity
ROE measures a company’s returns on its shareholders’ investments in the same manner. ROE is a company’s annual net income divided by its shareholders equity.
ROE = net income/shareholder’s equity
ROE is widely reported, and ...
Get Fire Your Stock Analyst!: Analyzing Stocks on Your Own now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
