Analyzing the profitability of a company is all important because we want to be sure the company we are investing in is making money. This line of thinking is broadly applicable if you are investing in established businesses as oppose to startups. Keep in mind that profitability in the past is not indicative of profitability in the future, and this rule is applicable for all financial indicators we will look at through out this series. In fact, it is worth pointing out that when working with financial ratios or financial statements in general, always remember that this information is just a snapshot of the company taken at a particular moment in time. So don't treat it as the absolute truth, instead use it as a gauge.
When deciding on which company to invest in, we want to know "If I invest 1 dollar in this company today, how much it will returned in a year?". In other words, we are looking for the Return on Equity (ROE).
Use this Knowledge Gene as an easy to use framework to - Calculate your Return on Equity
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