Return on Equity (ROE) is net income divided by shareholders' equity — measuring how efficiently a company generates profit from owner capital. A 15% ROE means $15 profit per $100 of equity. Average S&P 500 ROE is around 15-20%. Higher is generally better but can signal high leverage (which inflates ROE). Dupont analysis decomposes ROE into Net Margin × Asset Turnover × Financial Leverage, separating operational excellence from capital structure choices. Consistently high ROE (20%+) over many years indicates competitive moat; declining ROE signals competitive pressure or capital misallocation. Warren Buffett uses 15%+ ROE as a quality screen.
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Accounts Payable
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Accounts Receivable
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Accrual Accounting
Accrual accounting recognizes revenues when earned (regardless of cash receipt) and expenses when incurred (regardless of cash payment)…
Accrued Expense
An accrued expense is a cost recognized in the income statement before cash is paid — recorded as…
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Audit
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Return on Equity
August 22, 2026 · Aditya Gupta
Accounting
Related terms
Accounts Payable
Accounts Payable (A/P) is money a company owes to suppliers for goods or services received but not yet…
Accounts Receivable
Accounts Receivable (A/R) is money owed to a company by customers for goods or services delivered on credit.…
Accrual Accounting
Accrual accounting recognizes revenues when earned (regardless of cash receipt) and expenses when incurred (regardless of cash payment)…
Accrued Expense
An accrued expense is a cost recognized in the income statement before cash is paid — recorded as…
Amortization
Amortization is the systematic allocation of intangible asset cost over its useful life — analogous to depreciation but…
Audit
An audit is an independent examination of a company's financial records, internal controls, and statements — typically conducted…
