What Are Returns on Equity? Return on equity (ROE) is net income as a percentage of shareholders’ equity, and it measures profits per dollar of the capital shareholders have invested in a company. Although ROE does have some flaws—which we discuss in Chapter 6—it still works well as one tool for assessing overall profitability. As a rule of thumb, firms that are able to consistently post ROEs above 15 percent are generating solid returns on shareholders’ money, which means they’re likely to have economic moats. We’ll go over ROE in more detail in Chapter 6.
