One of the criteria we look at when selecting companies to include within our Global Leaders portfolio, return on equity (ROE) is a financial metric that measures a company’s profitability by calculating the amount of net income returned as a percentage of shareholder equity. ROE is an important measure of a company’s financial health because it indicates how efficiently a company is using its shareholders’ capital to generate profits. 

Companies with higher ROE generally have better profitability and are more attractive to investors. However, a high ROE doesn’t necessarily mean that a company is a good investment. It’s important to also consider other factors such as the company’s debt levels, industry trends, and competitive landscape. 

Here are some examples of companies with high and low ROE: 

High ROE

Apple Inc. (AAPL): Apple has consistently maintained a high ROE, with a five-year average of over 50%. This is due to its strong brand, efficient supply chain, and high margins on its products. 

Microsoft Corporation (MSFT): Microsoft’s ROE has increased in recent years, reaching almost 40% in 2021. The company’s focus on cloud computing and subscription-based services has helped to drive its profitability. 

Visa Inc. (V): Visa, the global payments technology company, has a five-year average ROE of over 30%. The company’s strong competitive position and growth in digital payments have contributed to its high profitability. 

Low ROE

Ford Motor Company (F): Ford has struggled in recent years, with a five-year average ROE of around 3%. This is due to challenges in the automotive industry, including increased competition and changing consumer preferences. 

Macy’s Inc. (M): Macy’s, the department store chain, has a five-year average ROE of less than 5%. The company has been impacted by the shift towards e-commerce and changing consumer shopping habits. 

General Electric Company (GE): GE has had a challenging few years, with a five-year average ROE of less than 5%. The company has faced a number of financial and operational challenges, including high debt levels and declining revenue. 

Overall, ROE can be a useful metric for investors to consider when evaluating potential investments. However, it should be used in conjunction with other financial and industry-specific metrics to make informed investment decisions.