ROE
Fundamental analysisReturn on equity — net profit as a percentage of shareholders’ equity.
In plain terms
Can be inflated simply by borrowing more. Always decompose it before admiring it.
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Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
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DuPont analysis
Fundamental analysisDecomposing ROE into net margin, asset turnover and equity multiplier.
In plain terms
Tells you whether a high ROE comes from brand power, operational speed, or just debt.
ROA
Fundamental analysisAlso called: Return on assets
Return on assets — net profit as a percentage of total assets.
In plain terms
Unlike ROE it cannot be lifted by swapping equity for debt, because the borrowed money still sits in the asset base. Most informative for banks and lenders, where the assets are the business.
ROCE
Fundamental analysisReturn on capital employed — operating profit as a percentage of debt plus equity.
In plain terms
The honest version of ROE. It cannot be manufactured with leverage.