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GlossaryReturn on Equity
Valuation

What Is Return on Equity?

Definition and plain-English explanation of "Return on Equity"

Return on Equity — Valuation illustration

Return on equity (ROE) measures how efficiently a company generates profit from shareholders' invested capital, calculated as net income divided by shareholder equity. A consistently high ROE (above 15%) often signals a high-quality, well-managed business with a durable competitive advantage.

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