In this video, I break down Return on Equity (ROE), one of the most important metrics investors use to measure how efficiently a company generates profit from shareholder investment. You’ll learn exactly what ROE means, how to calculate it using net income and average shareholders’ equity, and most importantly, how to interpret your results. I walk through the complete ROE formula step by step, explaining why we use average equity and what each component represents on the financial statements. I also compare real-world examples including Microsoft’s ~33% ROE and Apple’s eye-popping 150%+ ROE to show why context matters — and why Apple’s sky-high number isn’t as impressive as it sounds once you understand how stock buybacks shrink the equity base. Plus, I cover the critical limitations of ROE that every investor needs to understand, including how debt and buybacks can artificially inflate the metric and make companies look more efficient than they really are. Whether you’re a value investor looking to evaluate management effectiveness or just want to understand how Wall Street measures capital efficiency, this video gives you everything you need to master ROE analysis.
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Chapters
0:00 – What is Return on Equity?
0:41 – The ROE Formula Explained
1:07 – ROE Calculation Example
1:34 – High vs Low ROE Interpretation
2:38 – Real Examples: Verizon, Microsoft & Apple
3:43 – ROE Limitations & Key Takeaways
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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.
