Buy-A-Job Businesses and ROE

In a recent post I wrote that buy-a-job businesses do not offer return on equity.  What I should have said was that buy-a-job businesses do not offer inherent appreciation in their value; i.e. the value of their operating assets is not expected to change.

 If you buy such a business for $200,000, financed half with your own cash equity and half with debt, and you eventually pay back the debt, sure, you will earn a return on your equity (of $100,000) when you sell the business for $200,000!  But this is entirely due to the debt you incurred, not to any fundamental increase in the value of the business.

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