From the book Art and Science of Value Investing page 112 Debt-Adjusted Return On Equity ( DA-ROE ): The DA-ROE was created by Scott Thompson and Bud Labitan to help investors more accurately compare Returns On Equity (ROE) of businesses possessing differing amounts of debt. For example, if Business A and BusinesB both possess Returns On Equity (ROE) of 15, but Business A has a Debt/Equity ratio of 0 (no debt), and Business B has a Debt/Equity ratio of.40, all else being equal, Business A would be more attractive business in which to invest, because it has the same ROE, but with 0 debt. The formula is: ROE x (1-Debt/Equity) = Debt-Adjusted Return On Equity
Posted on: Tue, 12 Aug 2014 20:45:55 +0000
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