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.

Fórmula

Exemplo

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.

Por Que Importa

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.

Como o MiniValuator Usa Return on Equity (ROE)

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.

Na Prática

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Termos Relacionados

• 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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