good investment<\/a>. And, on the flip side, mediocre businesses can make for decent investments at the right price.<\/p>\n\n\n\nLIMITATIONS<\/strong>: <\/strong>As with any calculation and valuation, investors\nneed to be aware of some of items that are going into the final number. Some\nitems I have noticed, but not a complete list by any means and growing, is\nshown below: <\/p>\n\n\n\n- Return on equity can be distorted by things such as changes to financial leverage, aggressive share buybacks, asset write-downs, and opportunistic asset purchases. <\/li>
- Share repurchases could also be included as part of the dividend payout ratio for the SGR calculation if they are a large part of the capital structure and\/or seem to be taking away from growth capital investment. <\/li>
- Net income should be a good approximation of cash flow, but aggressive management are a natural occurrence in society and accounting lapses are always popping up in the news. True net income, ROE and returns to shareholders are based off of cash flows. If net income is not a good indication of cash flows for the business in question, a more robust analysis should be carried out. <\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"
The Return on Equity formula (ROE) is an important metric for judging the profitability of a company and how efficiently management is using the equity that shareholders have invested in the business. However, having a high ROE does not necessarily make a company a good investment. As always with investing, it comes down to price. […]<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"footnotes":""},"categories":[5969,2],"tags":[],"yst_prominent_words":[],"_links":{"self":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts\/7896"}],"collection":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/comments?post=7896"}],"version-history":[{"count":1,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts\/7896\/revisions"}],"predecessor-version":[{"id":21215,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/posts\/7896\/revisions\/21215"}],"wp:attachment":[{"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/media?parent=7896"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/categories?post=7896"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/tags?post=7896"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/einvestingforbeginners.com\/wp-json\/wp\/v2\/yst_prominent_words?post=7896"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}