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Author: ValueSnark Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 4927  
Subject: Re: Buffett's definition of ROE? Date: 7/3/2004 2:49 PM
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ROE is not the same as return on total capital which is not necessarily the same as return on assets (ROA)

Return on capital is a bit valgue to me - I think the fool did some measure like return on invested capital ROIC which a search might turn up, but 'capital' is a pretty unspecific term - which leads onto the fact that I *guess* that 'Equity Capital' is the same as 'Equity'

... as usual the advice is worth what you paid for it ;)

Your last comment applies to this post as well.

I assume that ROA is more meaningful for banks and other financial institutions (asset managers, brokers, etc.) because they are in the business of gathering assets and "selling money" or advice on how to make money.

Return on capital or ROIC refers to the return on a firm's total capital structure, which consists of the total of its shareholders' equity and debt.

Alfred Rappaport has some good discussion of the shortcomings of these various terms in his book _Creating Shareholder Value_ 2nd ed.
See also Rappaport and Michael Maboussin, _Expectations Investing_.
Fools should have these books.

They also have a good website, which I think is www.expectationsinvesting.com.

ValueSnark
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