Yeah, the gap between companies’ marginal return on cash investment and sector-specific [EDITED TO SAY: stock market performance] would be a better metric. This would still be incomplete; it leaves out factors like:
“Hollywood accounting” (systematic underassessment of profits in order to extract more money from counterparties with compensation tied to profits)
Labor’s share of income also being elevated by e.g. union work rules
Overall it seems like summary statistics are a pretty limited tool here relative to engaging with the concrete details of what’s going on in specific situations. (This is why I love Jane Jacobs so much.)
Oops, I used the wrong term. I meant return on marginal investment vs returns on equities as an investment vehicle (i.e. stock market returns). Will edit to clarify.
Yeah, the gap between companies’ marginal return on cash investment and sector-specific [EDITED TO SAY: stock market performance] would be a better metric. This would still be incomplete; it leaves out factors like:
“Hollywood accounting” (systematic underassessment of profits in order to extract more money from counterparties with compensation tied to profits)
Labor’s share of income also being elevated by e.g. union work rules
Overall it seems like summary statistics are a pretty limited tool here relative to engaging with the concrete details of what’s going on in specific situations. (This is why I love Jane Jacobs so much.)
Can you explain why return on cash vs. return on equity matters?
Oops, I used the wrong term. I meant return on marginal investment vs returns on equities as an investment vehicle (i.e. stock market returns). Will edit to clarify.