The Business Times — Larger companies tend to disclose return on equity for the benefit of investors, but for smaller companies, the figure may not be very useful.

For wealth management firm Paragon Capital Management, ROE is a useful metric, but it often relies on another measure – that of net profit margin (NPM) – to evaluate a business.

Paul Lee, CEO and CIO of Paragon Capital Management, shared that its aim is to invest in large businesses that are well-run and sustainably profitable; hence NPM, which uses total revenue as the denominator, is another helpful indicator.

Even as the investing environment is set to improve with lower interest rates, investors should continue to keep a close eye on the numbers. Diversifying the metrics used will likely lead to more informed and balanced investment decisions.

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Credit: The Business Times (Lee Su Shyan)