Valuation Metrics
ROE
Return on Equity
Definition
Net Income ÷ Shareholders' Equity × 100 = Return on invested capital
Explanation
ROE shows how efficiently a company generates profit from shareholders' investment. An ROE of 15% means for every $100 of shareholders' equity, the company earned $15 in profit. Warren Buffett famously looks for companies with ROE above 15%. Higher is generally better.
Example
ROE 20% = $200 million profit on $1 billion equity