Return on Equity - Why Warren Buffet Loves ROE

Return on Equity (ROE) is calculated by dividing shareholder equity and net income.

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DISCLAIMER: I am not a financial advisor. These videos are for educational purposes only. Investing of any kind involves risk. Your investments are solely your responsibility. It is crucial that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments. Please consult your financial or tax professional prior to making an investment.

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[Alfoncos]

Actually, if you take more debt your assets grow together with liabilities, but equity stays the same. Equity in relation to liabilities is lowered though. It shrinks proportionally not absolutely.

[andytolle]

Really insightful video. It's great that you also highlighted the pitfalls and reveal how you can look trough the smoke. Thank you, Jimmy

[awaite]

Home Depot has a ROE of 1, 363% and a Debt to Equity of 2, 857%. Could you explain why this is problematic? Home Depot’s leveraged free cash flow can pay its current interest expense, but if profits drop, it could be problematic.

[Alfoncos]

In my opinion ROE can be misleding. I don't get why it's a good metric compared to Return on Assets. Company uses all of its assets to generate the profit not just shareholders' equity. If it's heavily indebted it has lots of assets for making profit so ROE is much higher because liabilities that would lowered the ratio are not involved.

[arnassavio]

Hi Learn to invest, thank you for videos they are genuinly great. Could you please elaborate on A=L+E and how adding debt increases ROE. As ROE =NI /Equity but by adding debt you increase liabilities and assets but equity per se does shrink, only its procentage to assets. I appreciate your time to reply. Thanks

[dreamlifedividends]

Thoughts on reality income giving back a few payments in the form of ROE

[chethanlokesh]

give example and explain that makes more sence that this... i dint understand perfectly...

[vidya]

Roe is the roic when the company has no debts.

[sennatsutsui]

Wouldn't it make more sense to judge a business by its return on property, plant, and equipment and other investments it has? Then we can figure out how efficiently the company uses its assets and investments to produce earnings.

[hauyaohuiify]

You sound like the guy from criminal psychology