What is ROE (Return on Equity)?

 🔁 What is ROE (Return on Equity)?

ROE stands for Return on Equity. It tells you how well a company is using your money (shareholder’s equity) to generate profits.

In simple terms:

ROE = Profit earned from each ₹1 of shareholders’ money

It answers the question:
🧠 “If I invest ₹1 into this company, how much profit will it return annually?”

🧮 ROE Formula :

ROE = (Net Profit / Shareholders' Equity) × 100

Net Profit = What the company earns after tax.

Equity = What shareholders have invested + retained profits (i.e., company’s own money, not borrowed).

🧊 Why ROE Matters (in human terms)

ROE is like checking how efficient a machine is. If two companies have ₹1,000 crores in equity:

• Company A makes ₹100 crores → ROE = 10%

• Company B makes ₹200 crores → ROE = 20%

Which machine would you want running your money?
📈 Higher ROE = better efficiency in profit generation

✅ What is a Good ROE?

Sector	Healthy ROE Range
Banking & Finance	12% – 20%
FMCG & Pharma	18% – 30%
Tech & IT	15% – 25%
Manufacturing/Capital	10% – 20%

A consistently high ROE (above 15%) over multiple years often indicates:

• Strong brand (moat)

• Efficient management

• Smart reinvestment of profits

📊 Comparison Table: Indian vs Global Stock ROE

Company	Country	Sector	ROE (Latest)	Interpretation
HDFC Bank	India	Banking	~17%	Efficient & steady performance
Infosys	India	IT	~30%	Very strong, high profit on equity
Hindustan Unilever	India	FMCG	~35%	Exceptional brand-driven return
Apple Inc.	USA	Technology	~175%	Highly efficient + aggressive share buybacks
Coca-Cola	USA	Beverages	~45%	Strong global brand and cash flow generation

🔬 Example 1: Indian Company – Infosys

• Net Profit: ₹24,000 crore

• Equity: ₹80,000 crore

ROE = (24,000 / 80,000) × 100 = 30%

✅ Means: Infosys earns ₹30 profit for every ₹100 shareholders have invested.

🌍 Example 2: Global Company – Apple Inc.

* Net Profit: $100 Billion

* Equity: ~$60 Billion

ROE = (100 / 60) × 100 = ~167%

⚠️ Why so high?

• Apple buys back its shares regularly → reduces equity

• Keeps profits high → makes ROE explode

✅ But this ROE needs context. High ROE due to buybacks is good only if core business is solid.

🧠 How ROE Helps Moat-Based Investing

At Moat In You, we believe moats = sustainable competitive advantages.

A high ROE over 5–10 years could signal:

• A strong moat (brand, tech, network, cost)

• Pricing power (customers happily pay more)

• Operational excellence (uses capital wisely)

🧲 Great businesses attract capital. Moats retain it. ROE reflects both.

📊 Ideal ROE Benchmark by Sector:

Sector	Ideal ROE Range
IT & Tech	20% – 35%
FMCG	25% – 40%
Banking	10% – 20%
Capital Intensive	8% – 15%

🚦 When ROE Can Be Misleading:

Situation	Why It’s a Problem
Very high ROE (50%+)	May mean company has too little equity or is taking huge debt risks
Negative ROE	Company is losing money
ROE varies widely YoY	Inconsistent performance

🧾 Real-World Table: ROE Comparison:

Company	ROE (%)	Sector	Verdict
Infosys	32%	IT	Excellent capital efficiency
HUL	37%	FMCG	Strong moat + brand loyalty
SBI	14%	Banking	Decent, improving steadily
Tata Steel	9%	Metals	Capital heavy, cyclical
Apple (AAPL)	147%*	Tech	Leverage + share buybacks
Tesla (TSLA)	28%	Auto/Tech	Growing efficiency

🧠 Final Words for Moat In You Readers:

ROE isn't just a number — it's a lens.
It shows whether a company is genuinely creating value for its shareholders, or just riding hype.

🧲 Combine ROE with other metrics like ROCE, Free Cash Flow, Debt levels, and Moat to identify true long-term compounders.