Using ROE to pick stocks. This Forbes article notes how managers of the Jensen mutual fund use Return on Equity as a starting point for choosing which stocks to purchase.

In picking stocks, Jensen managers Robert Millen, 55, and Robert Zagunis, 49, start with a rigid and simple rule: They look only at companies that have posted a 15% or better ROE in each of the past ten years. (For the earnings numbers used in the numerator, they decide whether or not to count nonrecurring items on a case-by-case basis.) That leaves out erratic performers like Intel that have a good long-term average for ROE but have had some bad years. By comparison, the average ROE for S&P 500 companies is 17%; the average in the Jensen fund is 24%. Only 110 companies out of a universe of 5,000 pass through this first screen.