Return on Equity

Perusing the chat sites and news sites offers me great food for thought. I caught this excerpt tonight from Yahoo Finance about ‘return on equity’:

We begin the series with a discussion of return on equity. ROE is one of the most crucial and elemental gauges of a company’s profit potential. There’s more than one way to determine ROE. IBD’s method is to divide annual operating income by an average of the last two fiscal years’ stockholders’ equity. IBD also blends ROE in its SMR Rating, a gauge that also includes sales growth and profit margins. Stockholders’ equity, in turn, is a balance sheet item that shows the difference between assets and liabilities. That result, expressed as a percentage, shows how efficient a company’s management is with its equity funding. This allows shareholders to ask, “How good are these guys doing with my money?”

So do you think if you become an expert on a company’s ROE that you will also become an expert on when to buy that company’s stock, sell it and know how much to buy or sell of it at any given time?