Buffett:  How Inflation Swindles the Equity Investor (Fortune, May 1977)

Warren E. Buffett, FORTUNE (May 1977):Five ways to improve earningsMust we really view that 12 percent equity coupon as immutable? Is there any law that says the corporate return on equity capital cannot adjust itself upward in response to a permanently higher average rate of inflation?There is no such law, of course. On the other hand, corporate America cannot increase earnings by desire or decree. To raise that return on equity, corporations would need at least one of the following: An increase in turnover, i.e., in the ratio between sales and total assets employed in the business; Cheaper leverage; More leverage; Lower income taxes, Wider operating margins on sales. And that's it. There simply are no other ways to increase returns on common equity. Let's see what can be done with these...Full EssayRelated:ROE for the S&P 500 (1970 thru 2008), Courtesy of Pzena Asset Management

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