Quality investing
Selecting companies by the durability of the business: stable return on capital, moderate debt, profit confirmed by cash flow.
How to read the number
Price is secondary here but not irrelevant: quality bought at any price turns into a long stretch of zero return accompanied by excellent reports.
When the metric lies
The marks of quality come from the past and change slowly, so a list stays stable longer than the businesses on it do. A high return on capital is sometimes a consequence of debt rather than of efficiency.
Also known as: quality factor