Measure of the profitability of a business in relation to the equity.
Formula: ROE = Net Income / Total Equity
How to read it: > 15% is strong · > 20% is exceptional and Buffett's typical threshold for quality businesses. ROE inflated by high leverage (D/E > 2) should be discounted.
Loved by Warren Buffett, ROE specifically isolates how much profit management generates using the shareholders' deployed capital.