Been reading a few books on finance recently to brush up some stuff. Things that you don’t use it often, you’ll forget. So I make it a point to re-read some of the books that I’ve read and also some books for newbies. It’s important to learn as if you are a newbie even though you are not. You’ll see things in different light.
Anyway, I was just musing over a key criteria in evaluating companies. Among other things, it must have:
1. High consistent ROE, > 15% over 10 yrs or more, or if 5 yrs, have a higher margin of safety
2. High consistent ROA, >7%, same time criteria as above
ROE is calculated by taking the net profits divided by the equities portion. You can find net profits in the income statement, usually right at the bottom of it (it’s literally called the bottom line). Equities is …