Return on Equity

For a long term investor, it is important to know that the company that you are investing in is able to invest their profit back into the business well and deliver good Book Value growth (in addition to steady Dividends). Hence, another number to watch out for is the Return on Equity.

Return on Equity = Net Income / Share Holder Equity

or in term of pershare numbers

Return on Equity = Earnings per Share / Book Value per share

Notice that with bond investments, you always get back the par value plus all the interests over the years when the bond matures. However, when you invest in good companies, not only do you get dividend payments over the year, you can also benefit from Book Value growth as the company reinvest its earninings every year.