Ways to Use Return on Equity to Uncover Investment Opportunities

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How to use return on equity to uncover investment opportunities

Return on equity is another important way to analyse a stock.

The ‘equity’ of a business is how much money investors have collectively put into a business.

Companies that have a high return on this figure are the most valuable to own, usually. 

You can think about this with your own savings.

Imagine you have $20,000. Would you want it in a bank account that pays 1% or 10%?

Obviously, you want the highest return for your money.

That’s what good companies are able to do. They take money from investors and generate a very high return from it.

You might want to consider companies that have a competitive strength. Something like a government license, a great brand or brilliant management.

One warning: companies can use debt to boost their ‘return on equity’ number. So be careful.

Again, no one metric is the answer.
Filters are simply a way to find a list of ideas to investigate further.

Now let’s look at where profitability factors in…

Cheers,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch