WHY WARREN BUFFETT THINKS THAT RETURN ON EQUITY IS IMPORTANT
- Also, a higher return on equity means that surplus funds can be invested to improve business operations without the owners of the business (stockholders) having to invest more capital.
- It also means that there is less need to borrow.
WHAT RATE OF RETURN ON EQUITY DOES WARREN BUFFETT LOOK FOR?
- The benchmarks are the return on prime quality bonds and the average rate of returns of companies in the market.
- In 1981, Buffett identified the average rate of return on equity of American companies at 11%, so an intelligent investor would like more than that, substantially more, preferably.
- Bond rates change, so the long-term average bond rate must be considered, when viewing a long-term investment.
- In 1972, Buffett implied that a rate of return on equity of at least 14% was desirable.
COMPANY RATES OF RETURN ON EQUITY