Return on Equity (ROE)

Profit from owners' money.

ROE measures profit generated from shareholders' capital: for every Rs 100 of owners' money, how much profit each year? ROE = Net profit ÷ Shareholders' equity × 100 Profit Rs 15 crore on equity Rs 100 crore. ROE = 15%. Higher ROE Turns capital into profit efficiently, usually good. Consistently high A durable, quality business, but check debt isn't propping it up. Low or falling Capital used poorly, or profits shrinking. A very high ROE can come from heavy borrowing rather than a great business. Always read ROE with debt-to-equity. Real profitability of capital Great quality comparison Tracks management skill Inflated by high debt Distorted by buybacks One year isn't a trend

Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Ratios.