Stock Market 101: Fundamentals For Choosing Profitable Stock

[Stockbear]

There is so much knowledge that needs to be gained to empower us as informed investors. I reckon we all need to help each other out to help improve each others knowledge.
This article was published in BusinessDay today, but was actual written in May 20, 2005, by Ben McClure, Contributor - Investopedia Advisor.

Understanding The Subtleties Of ROA Vs ROE

With all the ratios that investors toss around, it's easy to get confused. Consider return on equity (ROE) and return on assets (ROA). Because they both measure a kind of return, at first glance, these two metrics seem pretty similar. Both gauge a company's ability to generate earnings from its investments. But they don't exactly represent the same thing. A closer look at these two ratios reveals some key differences. Together, however, they provide a clearer representation of a company's performance. Here we look at each ratio and what separates them.

ROE
Of all the fundamental ratios that investors look at, one of the most important is return on equity. It's a basic test of how effectively a company's management uses investors' money - ROE shows whether management is growing the company's value at an acceptable rate. ROE is calculated as:

Return on Equity = (Annual Net Income/Average Shareholders' Equity)

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