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CHAPTER 8 Stock Research Checklist—Equit... > What Is the Company’s ROE for the La...

What Is the Company’s ROE for the Last 10 Years? Does It Trend Upward?

Here is how to calculate ROE:

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Warren Buffett monitors ROE compared with earnings per share (EPS). In EPS, management can do some financial engineering to increase the figure over time, without increasing the earnings numbers. If they want to improve the earnings numbers, they can buy back shares, which causes the EPS to start to increase. Buying back shares is a good thing for the company and shareholders. But the intention to increase the EPS alone is not a good thing. If the company uses more debt, it can generate a higher ROE too. Generating a high return on equity with reasonable debt is a good thing.

Now we can calculate the ROE for both of our company comparisons; Coca-Cola’s (KO) ROE for the last 10 years are as follows:


  

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