Return on Equity (RoE)!

One of the parameters we use to gauge the quality of a company is its Return on Equity (RoE). A company with a low RoE indicates that it has not used its capital efficiently as compared to one with a high RoE. As a thumb rule a company with a RoE greater than 15 percent is considered to be an efficient user of capital. RoE is a gauge of a company’s profitability and how efficiently it generates those profits. The higher the RoE, the better a company is at converting its equity financing into profits.