ROE — Return on Equity
DeepScreen explains ROE as follows: ROE measures profit generated from shareholder capital. High ROE is strongest when it is consistent and not created by excessive debt.
Formula
Net income ÷ average shareholder equity
Illustrative example
Annual net income of 20 million divided by average equity of 100 million gives ROE of 20%. Review leverage before interpreting that return as business quality.
Educational example; these are not reported company figures.
How to interpret it
- Sustained ROE above sector norms can signal an economic moat.
- Read ROE beside debt-to-equity and return on assets.
Limitations
- Buybacks and leverage can inflate ROE.
- Negative equity makes the ratio misleading.
Frequently asked questions
- What is ROE?
- ROE measures profit generated from shareholder capital. High ROE is strongest when it is consistent and not created by excessive debt.
- How is ROE calculated?
- Net income ÷ average shareholder equity
- What should investors watch for with ROE?
- Buybacks and leverage can inflate ROE. Negative equity makes the ratio misleading.
. Educational analytical content, not investment advice.