was going through some notes and came across ‘Greater ROE associated with lower persistence factor.’ seems like more persistent earnings would likely generate greater returns, valuation. thanks. John
yea i reviewed this yesterday becuz i wasn’t sure if we had to know the exact formula. obviously a greater persistence in a high ROE is a good thing. the formula is pretty complex tho.
how is the formula complex they just throw in the “w” persistence factor term
so are lower persistence factors assoc with higher ROE’s?
Think of persistence as “sustainable”. Is high ROE sustainable in the long run? Not likely. More firms will join the industry and start taking higher profits, bringing ROE down. That’s why high ROE has a low persistence factor.
great, thanks ginla. makes sense.