Course 405: Classic-Growth Stocks
Is Profitability Keeping Pace with Growth?
In this course
1 Introduction
2 How Fast Has It Been Growing?
3 What Are the Trends in Growth Rates?
4 Where Is Growth Coming From?
5 Is Profitability Keeping Pace with Growth?
6 What Is the Company Doing with Its Profits?
7 Is the Company's Debt Leverage Increasing?
8 How Has the Stock Performed?
9 How Do the Stock's Price Valuations Compare with Those of Similar Firms?
10 Conclusion: Quality versus Price

One temptation for classic-growth companies is to stoke growth by getting into businesses or markets that offer limited profitability. Because the businesses of classic-growth firms are more mature, there are fewer obvious avenues of expansion. Willy-nilly expansion can make the top and bottom lines grow--even if return on capital suffers. But maintaining shareholders' return on capital hasn't been a problem for McDonald's. Over the past five years, returns on equity (ROEs) have consistently been in the 18% to 19% range, and returns on assets (ROAs) have been just as steady. Returns on capital dipped slightly in 1998 because of a couple of one-time write-offs, but it bounced back in 1999.

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