ROE (Return on Equity) measures how efficiently a company uses shareholders' capital to generate profit.
ROE = Net Profit ÷ Shareholders' Equity × 100
A 20% ROE means the company earns ₹20 for every ₹100 of equity capital — a reasonable benchmark in most sectors, with best-in-class businesses reaching 25–40%+.
Why it matters for unlisted shares
Consistently high ROE over 3–5 years is one of the strongest signals of a quality business. It matters especially in capital-light sectors (software, consumer, financial services) where high ROE is achievable and expected.
Watch out: ROE can be inflated by high debt, because borrowing reduces the equity denominator. Always pair ROE with the company's debt level.
ROE vs [ROCE](/glossary/roce)
ROCE includes debt in the capital base and is better for capital-intensive industries. For asset-light companies, ROE and ROCE converge.
Example: An unlisted specialty chemicals company maintained 28% ROE for 5 years — signalling durable competitive advantage that the market priced at a premium multiple.