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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (454)	10/19/1998 2:04:00 PM
From: Axel Gunderson	Respond to of 4691

...Return on Equity. While I would be the first to encourage the use of this methodology in investment analysis, I am also quick to acknowledge its limitations. As has already been pointed out, the numbers on equity have become so bad... Robert, agree with you and would take it even further. Between the distortions of accrual earnings and distortions of book value, I don't think ROE is worth anything more than a first screen. Even if a company hasn't distorted its book value, that book value is sometimes an artifact of decades of doing business. If somebody really wants to quantify business performance, it makes more sense to take year to year growth in free cash flow over the previous years free cash flow so that one can see how they are investing resources currently. Axel