◈ GLOSSARY · INVESTING
ROE (Return on Equity).
A definition, in plain English — with the books that teach it.
ClearValue Books · reviewed against sources ·
◈ DEFINITION
What it means
Definition
ROE is net income divided by shareholders' equity — the profit a company generates per dollar of book equity. A high, stable ROE often signals a strong business, but the caveat is that heavy debt can lift ROE without making the company any better. Always read it next to debt levels and ROIC.
◈ IN PRACTICE
Example
A company earns $100 million on $500 million of shareholder equity. ROE is 20%. A peer with the same ROE but twice the debt isn't necessarily as good a business — it's just more leveraged.
◈ RECOMMENDED READING
