Replies to Post #137819 onORIONS Money Stocks

Replies to #137819 on ORIONS Money Stocks

07/18/11 5:43 AM

#137820 RE: AugustaFriends #137819

Investing 101 One very helpful way to analyze the profitability of a company is to use DuPont analysis of return on equity (ROE).

ROE can be broken up into three components such that changes in ROE can be attributed to those components.

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with,

Decreasing leverage, i.e. decreasing Asset/Equity ratio

Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.

http://seekingalpha.com/article/279793-5-stocks-with-rising-profitability-and-strong-institutional-buying?source=yahoo