Article: Stock Focus: Cheap, Highly Profitable Companies

NEW YORK - Return on equity (ROE) shows how successful a company is at making money relative to what shareholders have invested in the business. Though there is some variation in the way financial analysts calculate return on equity, the references in this article refer to net profits for the latest four quarters divided by total shareholders' equity, including both tangible and intangible equity. Tangible equity measures the value of assets such as factories, machinery and inventory. Intangible equity includes items such as the goodwill premium paid in takeovers for patents, brand names and other nonphysical assets. Note that we use the average of shareholders' equity at the start and end ...

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