Fundamental AnalysisIntermediate
ROE
Return on Equity
How much profit a company generates on every rupee of shareholders' money.
Detailed explanation
ROE is net profit divided by shareholders' equity. Consistently high ROE without heavy borrowing usually points to a durable competitive advantage. Because debt shrinks the equity base, a leveraged company can post a flattering ROE while carrying real risk.
Formula
ROE = Net profit / Shareholders' equity × 100
Example
₹400 crore profit on ₹2,000 crore of equity is an ROE of 20%.
Why it matters
It links profitability to the capital owners actually put in, which is the number compounding your investment.
Key points
- Check the debt-to-equity ratio before admiring a high ROE.
- Look at a five-year trend, not a single year.
- ROCE is the debt-neutral cousin worth reviewing too.
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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.