INVESTMENT DANGERS
There can be dangers in averaging returns over a long period. A company might start with high rates which then fall away, but still have a healthy average. Conversely, a company might be going in the opposite direction.
As Warren Buffett looks for predictability in a company’s earnings, one would imagine that he would favour companies who increase their ROE or which have consistent levels.
COMPANY ANNUAL RATES OF RETURN
Compare the annual rates of return on equity of the following companies, using summary figures provided by Value Line.
Year | Coca Cola | Gap Inc | Wal-Mart Stores |
1993 | 47.7 | 22.9 | 21.7 |
1994 | 48.8 | 23.3 | 21.1 |
1995 | 55.4 | 21.6 | 18.6 |
1996 | 56.7 | 27.4 | 17.8 |
1997 | 56.5 | 33.7 | 19.1 |
1998 | 42 | 52.4 | 21 |
1999 | 34 | 50.5 | 22.1 |
2000 | 39.4 | 30 | 20.1 |
2001 | 35 | 4.3 | 19.1 |
2002 | 35 | 13.1 | 20.4 |
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