PE Return On Equity Practical Exercise

In this lesson, the instructor is giving a practical exercise on the importance of return on equity using the CME Group as an example. The instructor first goes over the basic metrics of the company, including market price, dividend rate, debt, earnings, and P/E. He also looks at the company’s book value growth over the last 10 years. He then uses the intrinsic value calculator on the Buffett’s books website to demonstrate the proper way of analyzing a company’s return on equity. The instructor explains that just looking at the pure numbers and using basic course type analysis is not enough to determine the return on equity of a company and that the art of security analysis requires putting in thought and effort to pick apart each company. The instructor’s initial assumption on the CME Group is that it won’t have a good return on equity due to its high book value and low projected earnings. However, he explains how the typical intermediate person might value the company based off of what they learned in course two.