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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Art Bechhoefer who wrote (45944)	8/28/2001 10:28:29 PM
From: Seeker of Truth	Read Replies (1) of 54805

Certainly return on the book value, i.e. annual % growth of the book value, for nondividend paying companies, is an interesting and often useful measure. It will say, other things being equal that company A is doing better than company B. But it will not tell us at what price to buy and what price is too ridiculous to hold at. The question is, should we use the growth rate of the book value instead of the analyst-projected growth rate in the future of the cash flow? The problem with the return on equity is that it can be increased by increasing the debt, always as long as the interest paid on the debt is less than the return on assets. I have found the return on assets an even more useful number than the return on the book value. And a very revealing number is the ratio of the return on assets to the return on equity(aka book value). When I see a big discrepancy then I know the stock is too highly "geared" as the British say. I like a return on assets of at least 12%. This eliminates many companies. But again it doesn't give us buy and hold upper bounds directly.

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