The Most Important Metric in Investing: Return on Equity Part 2 | Value Investor Chatter | #61

If you're looking to invest in a company, you want to focus on their return on equity. This tells you how much profit a company generates for each dollar of shareholder equity. The higher the return, the better. In this video, we'll discuss why return on equity is so important and how you can use it to find good investments.

Episode Outline

(00:00) Understanding Return on Equity in Asset-Light Industries

(02:08) Return on Equity and Debt to Equity Ratios

(04:24) Return on Equity: A Measurement of Profitability

(09:19) Operational Efficiency Ratios and Management Incentive Structures

(10:46) the Benefits of an Asset Light Business Model

(12:31)  Amazon's Investment Strategy in the 2000s

(14:07) The Impact of Capital Expenditures on Business Profitability

(16:09) The Difference Between CapEx and Operating Expense

(19:00) Capital Expenditures and Operating Expenses on Earnings Per Share

(22:06) The Benefits of Value Investing

(25:25) the Joy of Finding Great Businesses

(27:28) Return on Equity and Reinvestment Strategies

(29:08) Leveraging Software and Ecosystems for Business Growth

Value Investor Chatter

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