Column V – Consistently Increasing Equity

Cameron : Okay. So, column V asks the question, does the company have consistently increasing equity? And how far do we want to scroll back here? Six halves again?

Tony : Six halves again, that’s right. Again, no real science behind that, other than it gives us a trend without going back too far, which may be distorted because the company has changed.

Cameron : And so we’re going to give it a one for a positive and a zero for a negative here, because we’re trying to determine how well management is performing. If the net equity continues to increase steadily, they’re doing a good job. They’re building a business that’s consistently growing. It’s a sign of a strong business and competent management. If it’s going up and down, it’s an indicator that it doesn’t have steady growth and that there might be some problems.

Tony : Yeah, that’s right. And if you think of yourself as an owner of the company, a part owner of the company, equity is our asset. So that’s what we’re buying. And if you think about it, what we’re trying to do is to have a company which gives us a good return on equity and therefore that equity should be growing. So a bad result here can also be a sign of a company with a bumpy return or a low return on equity as well.