Course 205:
Measuring Returns on Capital
In this course
1 Introduction
2 Return on Equity
3 Why Return on Equity Matters
4 ROE and Internet Stocks

What makes a company great? It's not rapid growth. It's not landing on a best-of-the-year list. And it's not sporting a ".com" after its name. Rather, it's the ability to generate high returns on capital. Suppose you decide to open a science-fiction theme restaurant, complete with waiters dressed as aliens, video games, funky Star Trek décor, and so on. The money you spend building the joint is your capital. Whether the business is a good investment depends on how much profit you make as a percentage of that capital. If you earn a profit of $10,000 in a given year and you've invested $100,000 in building the restaurant, you've made a 10% return on your capital. Not spectacular, but better than a savings account.

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