ROE (Return on Equity) answers: "For every dollar shareholders invested, how much profit did the company generate?" Formula: ROE = Net Income ÷ Shareholders' Equity × 100. An ROE of 20% means the company earns 20 cents of profit for every dollar of equity. Higher is generally better.
Top-performing companies consistently deliver ROE above 15-20%. Apple's ROE exceeds 150% (because it has very little equity relative to profits — it buys back shares aggressively). Berkshire Hathaway averages around 10%. Indian IT companies like TCS and Infosys maintain ROE of 25-35%. Banks typically aim for 12-15%.
The DuPont analysis breaks ROE into three components: profit margin × asset turnover × financial leverage. This reveals whether high ROE comes from operational efficiency, asset productivity, or heavy debt use. A company with high ROE from debt (leverage) is riskier than one with high ROE from genuine profitability.