ROE measures how much profit a company generates per dollar of shareholders' equity. An ROE of 15% means the company earns $15 for every $100 of equity capital. Higher ROE signals efficient capital use, but beware: high leverage inflates ROE mechanically. The DuPont decomposition breaks ROE into three components: ROE = Net Margin × Asset Turnover × Equity Multiplier (or ROE = Profitability × Efficiency × Leverage). This reveals how a company achieves its ROE: through margins (pricing power), asset efficiency (capital-light model), or leverage (financial engineering). Typical values: 10-15% is average, 15-25% is strong, >25% is exceptional (high-moat businesses). Banks and leveraged firms often show >15% ROE structurally.

How Strata computes this — ending balances, not averages. Strata divides by shareholders' equity as reported at the period end. Most data vendors (Bloomberg, FactSet, Koyfin) divide by average equity across the period, so Strata's ROE will not tie exactly to theirs, and the gap is widest exactly where it matters most — large buybacks, big acquisitions, and IPO years, when the equity base moves sharply within the period. We use ending balances because it is the only convention under which the DuPont decomposition reconciles exactly: Net Margin × Asset Turnover × Equity Multiplier returns ROE precisely, because Revenue and Assets cancel. Averaging one term without averaging all of them silently breaks that identity. Return on equity is not meaningful when book equity is negative (routine for buyback-heavy firms such as McDonald's, Starbucks or AutoZone), so Strata shows N/A rather than a negative ROE. The same ending-balance convention applies to ROA, the equity multiplier, and the sustainable growth rate.