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AdvancedStock Alerts + Tools0:46Valuation

The Question That Ranks Businesses

Returns on equity, assets and invested capital ask how well a company turns money into more money — and only one of them resists leverage.

0:46 · 6 scenes

This lesson is part of a Stock Alerts + Tools plan.

What the lesson covers

  1. 0:00A great business turns a dollar of capital into more than a dollar.
  2. 0:05The three measures. Each divides profit by a different definition of the money put in.
  3. 0:14The leverage trap. Borrowing shrinks equity, so return on equity rises without the business improving.
  4. 0:24Why ROIC is the honest one. It counts debt as capital, so it cannot be improved by borrowing more.
  5. 0:33The comparison that matters. Returns above the cost of capital create value. Below it, growth destroys value.
  6. 0:41Compare the return to the cost of the capital behind it.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
The Question That Ranks Businesses — MAD Academy Training Video · MadStockAlerts