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Focus on return on capital and earnings yield from "summary" of The Little Book That Beats the Market by Joel Greenblatt
The key to successful investing is to focus on return on capital and earnings yield. Return on capital is a measure of how efficiently a company uses its capital to generate profits. It is calculated by dividing a company's earnings before interest and taxes by its total capital. Companies with a high return on capital are able to generate more profits with less capital, which is a good indicator of a strong business. Earnings yield, on the other hand, measures the return that an investor can expect to earn on a stock based on its current price. It is calculated by dividing a company's earnings per share by its current stock price. A high earnings yield indicates that a stock is undervalued and may be a good investment opportunity. By focusing on both return on capital and earnings yield, investors can identify companies that are not only profitable but also undervalued. This dual approach allows investors to find stocks that have the potential to outperform the market in the long run. It is important to note that while return on capital and earnings yield are important factors to consider when evaluating investment opportunities, they should not be the only criteria used. Investors should also consider other factors such as the company's competitive position, industry trends, and management team.- By focusing on return on capital and earnings yield, investors can identify profitable and undervalued companies that have the potential to outperform the market. This dual approach to investing can help investors achieve superior returns over the long term.
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