SteadySharesSteadyShares
Glossary
Returns & risk

ROE

Return on equity

How much profit the company generates on the money shareholders have in it.

ROE is a headline measure of quality: it tells you how efficiently management turns owners' capital into profit. Sustained high ROE is usually a sign of a genuine competitive advantage.

It has one large flaw. Debt increases it. A company can raise ROE simply by borrowing more and shrinking its equity base, without becoming any better at business. Always look at ROE alongside debt.

The formula
ROE = Net income ÷ Shareholders' equity
Figure

The only five moats there are

1
Brand
People pay more for the same thing
2
Switching costs
Leaving is painful or expensive
3
Network effects
It gets better as it gets bigger
4
Cost advantage
It can undercut and still profit
5
Scale in a small market
Not worth invading

If you cannot name which of these a company has, it probably does not have one. It is merely doing well, which is a different and far more temporary condition.

Why it matters

Consistently high ROE without heavy debt is one of the most reliable markers of a moat.

The mistake everyone makes

Admiring a high ROE that is entirely manufactured by leverage. Check the debt-to-equity ratio first.

Related terms

ROIC
The return on all the money in the business, borrowed and owned alike.
Debt to equity
How much of the business is funded by lenders rather than owners.
Economic moat
Whatever stops competitors from competing away a company's profits.

See ROE on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

Open SteadyShares