Investing in Stock: Technical Analysis #3
Look for company's with high return on equity (ROE) ratios
ROE means how well a company is using your investment- in other words, for every dollar you invest, how much can the company make? The higher the number, the better.
I am not going to attempt to break down how ROE is calculated. It is way beyond my high-school math. Most companies or investment research will publish ROE's so look for it in their public releases or in company research provided by investment banks.
As a rough guide, any non-financial company (so anything other than banks, insurance companies etc.) that can generate ROE over 10% is good. However, if the company has a high ROE and a lot of debt, be careful; like any household, growth based on excessive debt is not a good thing.
If you find a company that is doing both technical analysis #2 and #3 well, what you have is a company that can invest your money well (high ROE) and generates a lot of free cash with your money (increasing net cash provided by operating activities). If there is a lot of free cash, the company is hopefully paying an increasing dividend which, on the balance of probabilities, leads to above market return on investment (see rule #1).
ROE means how well a company is using your investment- in other words, for every dollar you invest, how much can the company make? The higher the number, the better.
I am not going to attempt to break down how ROE is calculated. It is way beyond my high-school math. Most companies or investment research will publish ROE's so look for it in their public releases or in company research provided by investment banks.
As a rough guide, any non-financial company (so anything other than banks, insurance companies etc.) that can generate ROE over 10% is good. However, if the company has a high ROE and a lot of debt, be careful; like any household, growth based on excessive debt is not a good thing.
If you find a company that is doing both technical analysis #2 and #3 well, what you have is a company that can invest your money well (high ROE) and generates a lot of free cash with your money (increasing net cash provided by operating activities). If there is a lot of free cash, the company is hopefully paying an increasing dividend which, on the balance of probabilities, leads to above market return on investment (see rule #1).
Labels: Investment strategy
0 Comments:
Post a Comment
<< Home