Is high ROE an illusion created by debt: ROE and debt ratio compared across major stocks

ROE measures how much profit a company made with its equity, so a higher value reads as capital put to good use. There is a long-standing worry about it, though: ROE can rise just by taking on more debt.

Reduce equity and grow assets with debt, and the same profit gives a higher ROE. That is why people say a high ROE has to be checked for whether it comes from running the business well or from carrying a lot of debt. The worry is that a high ROE may be an illusion created by leverage.

To see how often this worry shows up in actual stocks, Jupick set ROE and the debt ratio side by side across its watchlist.

Only stocks with measured values for both ROE and the debt ratio were counted. Values replaced with the neutral fill-in value because the data source gave none are not measured values, so they were left out, leaving 369 stocks.

These 369 stocks were ranked by ROE, the top quarter (ROE of 23.9 percent or more, 92 stocks) was treated as the high-ROE group, and Jupick looked at whether these stocks also carried more debt. If the worry were right, stocks with high debt ratios would cluster in the high-ROE group.

Of the 92 stocks in the top ROE quarter, 23 were also in the top quarter by debt ratio. That is a quarter of the group, 25 percent, exactly what random selection would produce. High-ROE stocks did not have more high-debt stocks among them.

The correlation coefficient between ROE and the debt ratio was 0.039, very close to zero. This sample gave no basis for saying a high ROE comes with more debt or with less. The two numbers predicted each other hardly at all.

One step further, the direction was closer to the opposite of the worry. The median debt ratio of the high-ROE group was 72 percent, below the overall median of 79 percent. The group with the lowest ROE, by contrast, had a much higher median debt ratio of 107 percent.

In other words, on this watchlist the heavy-debt side was low ROE, not high ROE. A high ROE was mostly not the result of heavy borrowing; it appeared more often among companies with light debt.

No. That ROE can be inflated by leverage follows from the formula, and some individual companies have in fact raised ROE with debt. What this measurement says is only that this did not show up as a clear tendency across this watchlist as a whole.

So the conclusion is closer to “a high ROE does not automatically call for debt worries” than to “do not look at ROE alone.” Individual companies still need ROE and the debt ratio read together, but in this sample the case for suspecting a leverage illusion the moment a high ROE appears was weak.

What these numbers say is this: on this watchlist, ROE and the debt ratio were nearly unrelated, and the worry that a high ROE is an illusion created by debt did not show up clearly across the sample as a whole.

What they do not say is just as clear. This measurement says nothing about which stock is good or what to invest in. It is not a judgment that a high ROE is good or that high debt is bad. It only counts how the two numbers sat in this sample.

The figures cited were measured on September 22, 2026, and change with updates. This content is for information only and is not investment advice. Jupick gives no trading advice and no price forecasts. Investment decisions and responsibility for them rest with the user.