Company Health

What is Return on Equity?

How efficiently a company uses shareholder money to make profit

Full Explanation

ROE = net income ÷ shareholder equity. It shows how many dollars of profit a company generates per dollar of equity. Higher ROE = more efficient at turning capital into profit.

Real-World Example

Company earns $20M on $100M equity → ROE of 20%.

Pro Tip

ROE above 15% is often cited as strong — but always compare within the same sector. Capital-light industries (software, finance) naturally have higher ROEs. Also watch out for artificially inflated ROE caused by heavy debt or share buybacks reducing the equity base.

Related Company Health Terms

P/E Ratio

How expensive a stock is compared to its profits

Profit Margin

What percentage of revenue becomes actual profit

Analyst Consensus

The average opinion of professional stock analysts

Debt-to-Equity

How much a company borrowed vs. what it actually owns

View all Company Health terms →

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