So now we know two important things about businesses that can earn a high return on capital. First, businesses that can earn a high return on capital may also have the opportunity to invest their profits at very high rates of return. Since most people and businesses can invest their money at only average rates of return, this opportunity is something special. Second, as we just learned, the ability to earn a high return on capital may also contribute to a high rate of earnings growth. Certainly, that’s good news for the companies chosen by the magic formula.
