Manage episode 375151360 series 2656707
In this high-risk, high-inflation, high interest rate world, profitability has never been so important. Companies know this too, meaning they may go to incredible lengths to present the most positive picture possible of financial health or risk being beaten down by short sellers otherwise.
One measure of financial health is return on equity, or ROE for short. This is calculated by dividing a company's net income (revenues minus expenses and taxes) by shareholder equity (a company's total assets minus its total liabilities), helping investors gauge how efficiently a company generates its profits.
Generally, the higher the ROE, the better a company is at converting investor capital into profits. But it also depends on the sector average (typically, the sector average or above is considered a "good" ROE).
Plus, they also named their highest conviction stock pick for the year ahead.
Note: This episode was filmed on Wednesday 23 August 2023. You can read an edited transcript below: