2) Fundamental Analysis
If you could only look at one number to judge a company's quality, pick ROE. It's the favorite ratio of Warren Buffett and nearly every great investor. Why? Because ROE shows how efficiently a company generates money from its own capital.
ROE (Return on Equity) is a ratio measuring what percentage of profit a company generates from shareholders' equity. The formula: Net Income / Total Equity x 100%. An ROE of 20% means every $100 of shareholder equity generates $20 of profit per year.
Imagine two friends start businesses. Andi invests Rp100 million and earns Rp20 million/year profit (ROE 20%). Budi invests Rp100 million but only earns Rp5 million/year (ROE 5%). Clearly Andi manages his business better. As an investor, you'd obviously want to 'partner' with Andi, not Budi. ROE shows who's better at the game.
BBCA consistently maintains an ROE of 18-22%, among the highest in Indonesia's banking sector. This means BCA is extremely efficient at generating profit from its capital. Compare that with small banks that might only have 5-8% ROE. No wonder BBCA commands a premium valuation -- its quality is on a different level.
After understanding this concept, apply it in tools so decisions become more objective and measurable.
Open Fair Value CalculatorWhat ROE is considered good?
Generally, ROE above 15% is considered good, above 20% is very good. But this depends on the sector. For banking, 15-20% ROE is excellent. For consumer goods, ROE can reach 30-50% due to asset-light business models.
Is extremely high ROE bad?
Very high ROE (above 40-50%) deserves scrutiny. Check if equity is very small (possibly due to heavy debt), or if there's one-time income/profit inflating it. Sustainably high ROE is great, but artificially high ROE is a red flag.
