1. What Is Return on Equity?
Return on Equity (ROE) measures how much profit a company generates for every dollar of shareholders' equity. It tells you how effectively management is using owners' money to create earnings.
If a company earns $200 million on $1 billion of equity, its ROE is 20% — meaning it produces 20 cents of profit for every dollar owners have invested. Higher is generally better, but context matters.
2. What Is a Good ROE?
- •ROE above 15% is generally considered strong and indicates an efficient, profitable business.
- •10%–15% is solid and typical of many established companies.
- •Below 10% may suggest weak profitability or an overcapitalized balance sheet.
Watch out: ROE can be inflated by debt. Borrowing money shrinks equity (the denominator), pushing ROE up even if the underlying business isn't more profitable. That's exactly why ROIC exists.
3. What Is Return on Invested Capital?
Return on Invested Capital (ROIC) fixes ROE's biggest flaw by measuring returns on all capital — both equity and debt — used to run the business.
Because it counts debt in the denominator, ROIC can't be gamed by simply borrowing more. It reveals whether a company creates real economic value regardless of how it's financed.
4. ROIC vs. the Cost of Capital
ROIC only means something when compared to a company's cost of capital (WACC) — the average rate it pays to fund itself.
ROIC > Cost of Capital
The company creates value. Every dollar invested earns more than it costs to raise. This is the hallmark of a great business.
ROIC < Cost of Capital
The company destroys value. It would be better off returning cash to shareholders than reinvesting it.
Warren Buffett prizes businesses that sustain high ROIC over decades — a sign of a durable competitive advantage, or "moat."
5. Breaking Down ROE: DuPont Analysis
The DuPont formula splits ROE into three drivers, showing exactly why a company's returns are high or low:
A high ROE driven by fat margins and efficient asset use is healthy. One driven mostly by heavy leverage is riskier. DuPont analysis helps you tell the difference.
6. Using ROE and ROIC on WIT
Both metrics appear on WIT stock pages. To find quality businesses:
- Look for consistently high ROIC (above 12–15%) across several years, not just one.
- Compare ROE and ROIC together — a big gap between them signals heavy debt.
- Read the full metric reference in our fundamental analysis guide.