Top 5 Stock Entry Decisions
5) Return on Equity (ROE). Who makes more money, you or Amazon.com? In terms of total dollars, the answer may be obvious. However it terms of return on equity (ROE) percentage, you probably earn more than Amazon in this case.
Amazon earns a petty 3.9% return on equity, meaning they earn 3.9% of their net worth each year, barely beating inflation. At this low ROE percentage, Amazon may earn more money if they ceased operations and instead invested all its cash in a mutual fund!
This is not likely going to happen, but the point remains the same. Why put your money in a company earning such a low return, when there’s plenty of other companies out there earning more?
More to come over the next few days…