You are a text-book person.. You need to think out=of-box and use some common sense. Don't comment on anything..just answer the question below:2 companies..pick the better one (NO price valuation concern..just which is better)A) Leo's Company (Poor ROE, High Income/Cap)1)Got 50 billion cash(capital)2)I spent $10 dollar on stuff and make 1 billion (super lottery business xP whocares..for the sake of example)RESULT = ROE (2%), Income/Cap = 100000000:1Note: Yes, I put rest of 50billion under my pillow (yes i am so INEFFICIENCY..I can't find other ways to generate money like lottery YET)B) Your company (High ROE, Low Income/Cap)1) Got 5 billion cash (capital)2) You spent 5 billion on stuff (1 year later it will have no resale value) and ONLY make 1 billionRESULT = ROE (20%), Income/Cap = 1:5Question: Which is the better company..A or B?Answer: supply your answer here _______________
You're asking whether someone would rather have $5 billion or $50 billion??Stupidest question I heard all week.
That's exactly IT! LOLI am demonstrating ROE (or return on anything) is useless!because it's a mathematical equation:income / some# of money = a %Different companies have different sum using at different stages..if you compare all companies using that% that's stupidHey, this is people's thinking:ROE 30% >better > ROE 3%
This is a stupid question.The price that you pay an enterprise is the comparison. At the right price, either can could be a good investment and either could be sucker bets.
Read my question CLEARLY.I asked which company is BETTER (you need to know the competitiveness) before even valuation.Rephrase this question:Same price for both company:which is better?
In real world..it's really obvious not all business deploy all their capital in 1st year.Some wait till decades later when they have the best opportunity and in the meantime they put the rest in the money-market (generate close to $0)Capital Expenditure vs. Income <---Tells you how good they are facing off competition.