ROE (Return on Equity)

A measure of how efficiently a company generates profit from shareholders' equity.

What Is Return on Equity?

Return on Equity (ROE) measures how much profit a company generates for each dollar of shareholder equity. It's one of Warren Buffett's favorite metrics because it shows how efficiently management deploys investors' capital.

ROE = Net Income ÷ Shareholders' Equity × 100

What's a Good ROE?

An ROE above 15% is generally considered strong. Companies like Apple and Microsoft consistently achieve ROEs above 30%, reflecting exceptional profitability and capital efficiency. However, very high ROEs can sometimes be artificially inflated by high debt levels (which reduce equity).

DuPont Analysis

The DuPont framework breaks ROE into three components: profit margin × asset turnover × financial leverage. This decomposition reveals whether high ROE comes from strong profitability (good), efficient asset use (good), or excessive leverage (risky).