Return on Equity (ROE)

Return on Equity (ROE) measures how much net profit a company generates per dollar of shareholders' equity. It reflects management's ability to generate returns for equity owners, making it a widely used quality metric in stock valuation.

Formel

Beispiel

A company with $200M net income and $1B in equity has an ROE of 20%. Warren Buffett typically targets companies with ROE above 15% as part of his quality-focused stock valuation approach.

Warum es wichtig ist

ROE is a key signal in stock valuation: sustained high ROE indicates a business with competitive advantages. However, it can be inflated by leverage. Comparing ROE to ROIC helps separate genuine quality from financial engineering.

Wie MiniValuator Return on Equity (ROE) verwendet

MiniValuator reads ROE as a core measure of business quality. Sustained high ROE is one of the signals that separates a durable franchise from an average business, and for banks and other financial companies it is a primary input rather than a sidecar to a cash-flow model.

In der Praxis

• Wie das KGV-Modell den fairen Wert ermittelt
• Analyse des fairen Werts im Sektor Technology
• Analyse des fairen Werts im Sektor Healthcare

Verwandte Begriffe

• Return on Invested Capital (ROIC) — ROIC measures how efficiently a company generates profit from its total invested capital (equity + d...
• Discounted Cash Flow (DCF) — Discounted Cash Flow (DCF) is a fundamental stock valuation methodology that estimates the present v...
• Intrinsic Value — Intrinsic value is the estimated true worth of an asset based on its fundamental economic characteri...
• Free Cash Flow (FCF) — Free Cash Flow (FCF) is the cash a company generates from its core business operations after funding...

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