ROE (Return on Equity)
What it is: how much profit the company squeezes from each dollar shareholders have in it. The quality-of-business meter.
Rules of thumb:
• 15%+ (green) = good business · 20%+ sustained for years = great business
• Under 5% (red) = the business works hard to go nowhere
Why Buffett obsesses over it: a company that compounds at 20% ROE doubles shareholder value roughly every 4 years — *if* it can keep reinvesting at that rate. Durable high ROE = a moat.
The catch: debt inflates ROE artificially. High ROE + huge debt = mirage. Always check debt/equity next (that's another lesson).