Return on Equity (ROE)

Measuring management efficiency.

Return on Equity (ROE) is the ultimate measure of how efficiently a company's management uses shareholders' money to generate profit. It is Warren Buffett's favorite metric for identifying high-quality businesses.

How to Calculate?

ROE = (Net Income / Shareholders' Equity) × 100

What is a Good ROE?

• Below 10%: Generally considered poor or average performance.
• 15% - 20%: Considered a good, healthy company.
• Above 20%: Exceptional management efficiency. These companies can often fund their own growth without borrowing debt.