How much profit does the company make with its owners' money?
Return on Equity (ROE)
Lesson 4 of 11 · Efficiency
ROE is the yearly profit a company makes for every ₹100 its shareholders own in it.
In everyday life
You put ₹100 into a lemonade stand with your friends. At the end of the year it has earned ₹15. The stand's ROE is 15%: that's how hard your money is working.
How it's worked out
Example: Sunrise Tea, a made-up company that sells packaged tea across India.
In words: ₹15 profit for every ₹100 the owners have in the business.
Try it yourself
Move the sliders and watch the answer, the picture and the verdict change together.
₹15 profit for every ₹100 the owners have in the business.
- Net profit
- The rest
Each dot is 1 of every 100 in “shareholders' equity”.
Rough guide
- Weak
- Okay
- Good
What's a good number?
- Weak
Up to 10%
- Okay
10% to 15%
- Good
Above 15%
A fixed deposit pays about 7%. A business should earn clearly more than that on its owners' money to be worth the risk.
Key number in the sector guides for Banks, IT services and FMCG.
How to read it
Good signs
- ROE above 15% for 5 years or more, not just one good year.
- High ROE with low debt: the profit comes from the business, not from borrowing.
Watch out for
- Debt can pump up ROE: borrowed money earns profit, but isn't counted as the owners' money. Always check debt-to-equity alongside it.
- Losses in past years shrink equity, which can make ROE look high for the wrong reason.
Read it with
For learning only. Example companies are made up, and the rough guides are rules of thumb, not targets. Nothing here is advice to buy or sell any stock.