ROE (Return on Equity)
Net income as a percentage of shareholder equity — how efficiently a company turns the capital shareholders have put in (or left in) into profit.
What it means
Return on equity (ROE) divides a company's net income by its shareholders' equity, expressed as a percentage — it measures how efficiently a company converts the capital shareholders have invested (directly, or through retained earnings the company chose to keep rather than pay out) into profit. A 20% ROE means the company generated 20 cents of profit for every dollar of shareholder equity over the period measured. It's one of the most widely cited measures of management effectiveness at deploying shareholders' capital, and a core input into how investors like Warren Buffett have historically screened for high-quality businesses.
How MarketWall calculates it
MarketWall reports ROE directly from each stock's weekly Yahoo Finance fundamentals sync. See the Data Sources & Methodology page for the full sync schedule.
How it's typically used
A consistently high ROE, sustained over multiple years rather than a single standout period, is generally read as a sign of a business with real competitive advantages — pricing power, operational efficiency, a business model that doesn't require heavy reinvestment to keep generating profit. A single high-ROE year is far less informative than a multi-year pattern, since ROE can spike temporarily for reasons that have nothing to do with improving business quality. That's also this ratio's most important caveat: ROE has a leverage problem baked into its own formula. A company can boost its ROE simply by taking on more debt (which shrinks the equity in the denominator without necessarily improving the actual underlying business), so two companies with identical operating performance but different debt levels will show different ROE, with the more indebted one looking more "efficient" by this measure alone. That's exactly why ROE is best read alongside a leverage measure like debt-to-equity — a high ROE paired with a low, stable D/E is a materially stronger signal than a high ROE propped up by heavy borrowing. ROE can also swing wildly, or become uninterpretable, for companies with very small or negative shareholder equity (from years of losses or aggressive buybacks that shrink the equity base) — a tiny denominator can produce an extreme, not-very-meaningful ROE percentage.
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FAQ
What's considered a good ROE?
There's no universal number, but ROE in the high teens to 20s (percent) sustained over several years is commonly cited as strong. Comparing against direct industry peers and the company's own history matters more than any fixed threshold.
Can a company inflate its ROE artificially?
Yes — taking on more debt shrinks the equity in ROE's denominator without necessarily improving the underlying business, which mechanically boosts ROE. That's why it's best read alongside a leverage measure like debt-to-equity.
Why can ROE be extremely high or not meaningful for some companies?
If shareholder equity is very small or negative (from accumulated losses or aggressive share buybacks), the ROE calculation's denominator becomes tiny or negative, producing an extreme or uninterpretable percentage.
What's the difference between ROE and ROA?
ROE measures return relative to shareholder equity; return on assets (ROA) measures it relative to total assets, including the portion funded by debt. ROA isn't affected by leverage the way ROE is, which is part of why comparing the two together is informative.
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