Return on Equity (ROE)

Return on equity measures net profit as a percentage of shareholders’ equity — the money owners have put in and left in the business. A consistently high ROE suggests management turns owner capital into profit efficiently, a hallmark of a quality business. It’s worth checking whether a high ROE is earned honestly or simply inflated by heavy borrowing, which shrinks the equity it’s measured against. Market Lens uses ROE as one of the inputs to its Moat score.