Return on Equity
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Profit Margin
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Equity Multiplier
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When Should You Use This?
Use ROE to compare how efficiently companies use shareholder capital to generate profits. Warren Buffett famously looks for companies with consistently high ROE (above 15%) as a sign of a durable competitive advantage.
How It Works
1
Enter Financials
Find net income on the income statement and shareholder equity on the balance sheet.
2
Optional: DuPont
Add revenue and total assets to see the DuPont breakdown: margin x turnover x leverage.
3
Interpret
ROE above 15% is strong. But check if high ROE comes from high margins (good) or excessive leverage (risky).
Frequently Asked Questions
Above 15% is considered strong. The S&P 500 average is about 13-15%. Above 20% consistently suggests a competitive moat.
Yes. Extremely high ROE (40%+) often comes from high debt (leverage). Check the debt-to-equity ratio alongside ROE.
ROE measures return on shareholder capital. ROA (Return on Assets) measures return on total assets including debt. ROA removes the effect of leverage.
DuPont breaks ROE into three components: Profit Margin x Asset Turnover x Equity Multiplier. This reveals whether ROE comes from margins, efficiency, or leverage.
High ROE means the company can reinvest profits at high rates of return, compounding shareholder wealth. It's a sign of a competitive advantage or moat.