What is High return on equity (ROE)?

Return on equity (ROE) is a financial ratio that measures a company's profitability by expressing the amount of net income as a percentage of shareholders' equity. It is calculated by dividing net income by shareholders' equity.

A high ROE indicates that a company is generating a high return for its shareholders relative to the amount of equity invested in the company. It suggests that the company is effectively using shareholders' funds to generate profit.

ROE can be used to compare the profitability of different companies or to compare a company's performance over time. It is widely used by investors and analysts to evaluate a company's efficiency in utilizing shareholder's investment. Companies with high ROE are considered more attractive for investment as it suggests that the company is effectively generating profits, which could lead to capital gains and potentially higher dividends.

It is important to note that high ROE does not always indicate a strong company. A company may achieve a high ROE through financial leverage, which can be risky. Therefore, it is important to consider other financial metrics and the company's overall financial position and business model to gain a comprehensive understanding of the company's strength.