Return on equity (ROE)
How much profit a company generates per unit of shareholder capital.
Formula
ROE = \frac{\text{Net income}}{\text{Equity}}Trailing twelve-month profit over equity at the reporting date. Stored as a fraction, not a percentage.
How to read the number
ROE is the clearest measure of whether management can earn on the money entrusted to it. A consistently high ROE usually signals a competitive advantage.
When the metric lies
ROE is easy to inflate with debt: the smaller the equity, the higher the ratio. A company with near-zero equity shows a spectacular ROE while hanging by a thread. Always read it alongside leverage.
Where it is used
The metric is calculated across every security in the catalogue and appears on the instrument card, in the multiples table and in the screener.
Also known as: return on equity, roe