Return on Equity (ROE)

What is the Return on Equity (ROE)?

Return on equity measures how efficiently a company turns shareholders’ money into profit. An ROE of 20% means the company earns ₹20 of profit for every ₹100 of equity capital.

How to interpret it

Consistently high ROE (>15–20%) is a hallmark of a quality business with a durable competitive advantage. But watch for ROE inflated by heavy debt — high leverage can boost ROE while adding risk.

What’s a good ROE?

Above 15% is good; above 20% sustained is excellent. Below 10% suggests weak profitability or a capital-heavy model.

Common mistakes

• Ignoring that debt can artificially inflate ROE — check debt-to-equity alongside.
• Comparing ROE across capital structures without adjusting.
• Trusting a single year — look for consistency over 5+ years.