What is Return on Equity (ROE)?
ROE measures how efficiently a company uses shareholders' capital to generate profits. An ROE consistently above 15% is generally considered excellent, though it must be compared to industry peers — and a high ROE driven primarily by high leverage can be a warning sign rather than a strength.
Formula
ROE = Net Income ÷ Shareholders' Equity
How TopTier Strategy uses Return on Equity (ROE)
ROE is the headline metric in our Returns pillar — but we always check leverage alongside it to avoid being fooled by financial engineering.
Related Glossary Terms
Other concepts in the Returns pillar.
See Return on Equity (ROE) on real stocks
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