By
admin on October 12th, 2008
Growth investing is done by looking at company which has high growth. In the late 1990s, when technology company flourish, this method gives very high return.
How?
This method is focusing on growth, so it will find company with high growth, high earning growth. But you must also watch other aspect, like it’s debt to equity, and ROE.
How’s the performance?
Also analysis done by many people, stock with high growth usually beat other stock in return. But you also must remember to check that company not just by looking at its growth projection. Other things to consider like will it be likely that the company find any new technology, product, or project which will significantly influence its earning.
For who?
Growth investing is long term horizon, more than 1 year. Company with high growth will always reinvesting their self to produce new technology and product, so that future earning will rise significantly in the future.
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By
admin on October 4th, 2008
The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. ROE measures a company’s profitability by comparing its net income to shareholders equity (book value). ROE is a speed limit on selffunded growth (company’s profit). That is, a company cant grow earnings faster
than its ROE without raising cash by borrowing or selling more shares. For instance, a 15% ROE means that the company cant grow earnings faster than 15% annually by relying only on profit to fuel growth.
Higher ROE is usually better. ROE, then, becomes a measure not only shows return of the company is generating, but also of how successfully management has been in running the corporation. Good ROE ratio depends on the company’s industry. When looking for stocks, we want to find companies that show an
increasing ROE over time. It’s a sign to us that management is getting better and better at deciding what to do with its money. The higher the number, the better management has allocated capital.
It turns out that a company cannot grow earnings faster than its ROE without raising additional cash. That is, a firm with a 15 percent ROE cannot grow earnings faster than 15 percent annually without borrowing funds or selling more shares. So ROE is a speed limit on a firm’s growth rate. Many specify 15 percent
as their minimum acceptable ROE when evaluating investment candidates.
You also must pay attention on the company’s debt when calculating ROE. Recall that shareholder’s equity is assets less liabilities. High liabilities means low equity. The higher-debt firm will then show the higher return on equity. Consequently, you should take debt levels into account when comparing different firm’s return on equities.
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