ROE — Return on Equity Explained
7/6/2026
fundamentals
guide
ROE = net profit divided by shareholders' equity: how hard the owners' money works.
Level by level
Beginner
15 percent+ sustained for years marks quality; single digits mean the capital could earn more in a fixed deposit — with less drama.
Intermediate
CONSISTENCY beats peaks: a steady 18 percent across a cycle beats one 40 percent year. Compare within sector; capital-light businesses naturally run higher.
Advanced
DuPont decomposition (margin x turnover x leverage) reveals WHERE ROE comes from — debt-pumped ROE (high leverage term) is fragile; margin-driven ROE is the durable kind.
Common mistakes
- Chasing a high-ROE year created by leverage
- Ignoring how much debt manufactures the number
Practise & tools
_Educational content only — not financial advice. Historical behaviour never guarantees future results._
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