ABSTRACT
Between share price, which looks forward, and accounting return on equity, which looks backward, the link is only tenuous, certainly in the short term. The bigger the changes affecting a company, the less will past results be a good guide to likely future achievement. General conditions in the financial markets affect share prices: they also reflect the market’s view of uncertainty – both the risks inherent in the business, and those related to the methods of financing. Volatility of past earnings and comparisons with other companies in the same industry may help show whether returns have been adequate in relation to risk.
