Getting Your Money's Worth: Screening for Return on Equity

    by Wayne A. Thorp

    Return on equity (ROE) is a popular measure of profitability and corporate management excellence. The simplest method of calculation is to divide earnings for the last four quarters (trailing 12 months) by shareholder’s equity. This relates earnings generated by a company to the investment that stockholders have made and retained within the firm. The latter figure—stockholder’s equity—is equal to the total assets of the firm less all debt and other liabilities of the firm and represents investors’ ownership interest in the company. On the balance sheet, it is the sum of preferred stock, common stock, and retained earnings.

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    AAII tracks over 50 stock screening methodologies and reports the companies passing each of these screens on a monthly basis. A complete description of the screens, as well as up-to-date performance results, is available at AAII.com in the AAII Stock Screens area.

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