That has encouraged banks to use more leverage in order to earn high returns on equity.
One investing rule of thumb says to look for companies with high returns on equity.
The analysts recommend stocks in companies with healthy balance sheets, high returns on equity and low levels of debt.
My Buffett-inspired model looks for firms with lengthy histories of steady earnings increases, conservative financing and high returns on equity.
The fund invests only in companies with a decadelong history of high returns on equity, a test Apple doesn't meet yet.
This miracle could explain the very high returns on equity achieved by the banks and the very high wages given to bank employees (an international, not just a British, phenomenon).
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Finally, my Warren Buffett-based model also sees a lot to like about CHL. It targets firms with lengthy histories of annual earnings increases, low debt, and high returns on equity.
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With long-term earnings and revenue growth both above 19%, attractive valuations (the stock's PEG ratio is 0.47), high returns on equity, and a decent dividend yield, it's easy to see why Reese's guru strategies find the stock a good one for 2010 and beyond.
In 1988, he got attracted to International Dairy Queen and bought 50 shares of its class A stock mainly because he thought it was a company that Buffett would favor, given its good products, easy-to-understand operations, high returns on equity, little debt, and a reasonable price-earnings ratio.
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Yet, for equity mutual funds, high past returns are a poor predictor of high future returns.
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He scours Asia for enterprises that sell into large and expanding markets and have high or rapidly rising returns on equity, strong free cash flow (meaning net income plus depreciation minus capital expenditures, adjusted for working capital) and a focused long-term strategy.
Over the past few years, the dollar has been strong mainly because foreign investors have been happy to finance America's external deficit, thanks to rapid economic growth and high returns, especially in its equity market.
In fact, emerging market sovereign bonds have produced equity-like returns at times in the past (with commensurately high volatility, of course).
But even if asset returns are estimated accurately, the high expected return reflects the greater risk inherent in equity investments.
On the one hand, high past returns are an indicator of low future returns: that has certainly proved true for those who bought equity mutual funds at the turn of the decade.
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