By VestAI Research | Last updated: March 2026
Return on Equity: Meaning, Definition & Indian Stock Market Examples
Net profit as a percentage of shareholder equity — measures capital efficiency.
What is Return on Equity?
Return on Equity (ROE) measures how effectively a company uses shareholders' capital to generate profit. Calculated as Net Profit ÷ Shareholders' Equity × 100. High and sustained ROE indicates a competitive moat and capital-efficient business model.
Return on Equity — Indian Stock Market Example
Asian Paints has maintained ROE above 25–30% for decades, reflecting its pricing power in decorative paints. HDFC Bank consistently delivers 15–18% ROE. Capital-intensive businesses like steel or infrastructure often have lower, more volatile ROE.
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Analyse with OrionFrequently Asked Questions about Return on Equity
What is a good ROE in India?
Generally, ROE above 15% is considered healthy. ROE above 20% is excellent and indicates a strong moat. However, very high ROE can sometimes be inflated by high debt levels, so always check the Debt-to-Equity ratio alongside ROE.
What is the DuPont analysis of ROE?
DuPont breaks ROE into three components: Net Profit Margin × Asset Turnover × Financial Leverage. This helps diagnose whether ROE is driven by operational efficiency, asset utilisation, or financial leverage (debt).
Related Terms
Return on Capital Employed
EBIT as a percentage of capital employed — measures total capital efficiency including debt.
PB Ratio
Price divided by book value per share — compares market price to net asset value.
Net Profit Margin
Net profit as a percentage of revenue — shows what portion of sales becomes profit.
Earnings Per Share
Net profit divided by total shares — profit attributable to each share.
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