The Motley Fool Discussion Boards

Previous Page

Investing Books / Security Analysis -- the book


Subject:  Re: Dumb Question Date:  1/30/2003  4:22 PM
Author:  educatedidiot Number:  1613 of 1942

OK, I know this is probably basic but I have to ask it. How can a company consistantly achieve a ROE significantly higher than the growth of net income?

As for how this is done consistently (I'm guessing this what you were interested in), the easy way would be to pay out a portion of earnings in dividends (or a regular share repurchase program). Another way would be to maintain leverage - i.e. to continually increase debt as the company grows. A company like KO uses a combination of both of these to maintain a ROE above its rate of income growth.
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us