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High ROE Stocks

Return on Equity (ROE) as the name suggests is the amount of return that a company earns by using the funds generated from issuing equity shares. It is a measure of the financial performance of a company.

ROE is derived by dividing net income by shareholders' equity. To make an investment decision it is wise to compare the stock's ROE with its peers.

An ROE which equals to or slightly above the industry ROE ratio should be preferred. Of course, high ROE stocks are good for investment because the company has a high earning capacity.

However, a very high ROE ratio compared to the industry may prove to be risky because this might indicate a low equity portion in the company's finance pool.

Companies with sustainable ROE that grow consistently in confirmation with industry ROE are attractive for investment.

However, studying the ROE ratio in isolation may not give a clear picture. There are various aspects that an investor has to consider while selecting fundamentally strong stocks.

Check out Equitymaster's powerful stock screener for finding the high ROE stocks in India.

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