Corporate FinanceFinancial Glossary
ROE (Return on Equity)
Definition
The net profit generated by a company as a percentage of shareholders' equity. Calculated as Net Profit divided by Average Shareholders' Equity. An ROE of 18% means the company generates Rs 18 in profit for every Rs 100 of equity capital.
Why It Matters
ROE above 15% over a 5-year period is a hallmark of well-managed Indian companies. Warren Buffett considers ROE the most important single metric. However, very high ROE can be artificially inflated by high debt (leverage). Always check the debt-to-equity ratio alongside ROE for a complete picture.