ROE (Return on Equity)

Profit earned on each ₹100 of the money the COMPANY holds for its owners — not on what you paid for the share.

Net profit divided by shareholders' equity. An ROE of 18% means the company turned every ₹100 of owners' money into ₹18 of profit in a year.

"Owners' money" is a specific thing, and it is not the share price. It is the book value on the company's own balance sheet: the capital shareholders originally put in when shares were issued — at the IPO, at a rights issue — plus every rupee of profit the company kept rather than paying out as dividends. Those retained profits are usually the larger part by far.

When you buy on the exchange, your money goes to the seller, not to the company. Nothing about that transaction touches the balance sheet, so the price you paid cannot appear in ROE. Two people who bought the same share ten years apart at wildly different prices are looking at exactly the same ROE.

So ROE answers "how well does this business use the money entrusted to it?" — a question about the COMPANY. It does not answer "what will I earn on today's price?" For that, the rough equivalent is the earnings yield, 1 ÷ PE: a stock on a PE of 16.5 earns about 6% a year relative to what you pay, however impressive its ROE.

For banks and lenders ROE is *the* headline efficiency measure, because the usual alternative — ROCE — does not translate to their balance sheets.

For everyone else, prefer ROCE. A large dividend or buyback shrinks the equity ROE is divided by, so ROE can leap while the business does exactly what it did before — same capital at work, same profit, smaller denominator. When ROE runs far above ROCE, that gap is usually the story: capital was returned, or debt was taken on.

HINDZINC: equity capital ₹845 crore (the face value of the shares issued) + reserves ₹21,630 crore (decades of retained profit) = ₹22,475 crore of shareholders' funds. Profit against that gives an ROE of about 76%. Meanwhile the share trades at ₹539 against a book value near ₹53 — the other ₹486 is what the market pays for the franchise, and none of it is in the ROE.

Above 20% — genuinely high quality, if it is sustained

12–20% — solid

Below 10% — the business is not doing much with shareholders' money

Two ways ROE misleads. It is flattered by borrowing: debt raises profit without raising equity, so a heavily indebted company can post a fine ROE while being fragile — always read it beside debt-to-equity. And a very high ROE often means a *small* book value rather than huge profit, because years of buybacks or dividends have shrunk the equity it is divided by. A company earning 76% on its book is not handing you 76%.

Analysis only: Supath AI does not give investment advice. Consult a SEBI-registered financial advisor before making investment decisions.