The perils of return on equity

Investors using simple return on equity measures to value Forge Group have just lost their shirt. Nathan Bell explains a better way to use this much-vaunted ratio.

Investors have just lost a bundle on engineering company Forge Group as it skirts with bankruptcy due to massive losses suffered on two major projects. This is typical of the contract engineering and mining services industries, as I learned the hard way nearly 20 years ago after making one of my first ever investments in contracting company Eltin Limited, which was eventually acquired by Leighton.

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