Return on Equity (ROE)

A profitability metric calculated by dividing net income by shareholders' equity, expressed as a percentage. ROE measures how effectively a company generates profit from the capital shareholders have invested. Warren Buffett has frequently cited ROE as one of his favorite metrics, favoring companies that consistently earn above 15%. However, ROE can be artificially inflated by high debt levels, which reduce the equity base, so it should be evaluated alongside leverage ratios.