Corporate profitability has likely bottomed in this tough economy, but don't expect companies to expand margins and profits significantly in the next 12 months, a Goldman Sachs analysis shows. Goldman looked at return on equity, which measures net income divided by shareholders' equity. In general, this ratio measures how well management is squeezing profits out of a company's assets.
" Goldman cited the slowing pace of price hikes and higher interest rates and taxes as headwinds for corporate profitability in the short term. But the firm found stocks for clients to buy that are bucking the trend. Goldman looked at companies where its own analysts expect ROE to expand the most over the next 12 months.
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