What Is a Roe Cannon
A roe cannon is a simplified financial model that uses return on equity (ROE) to estimate a company's intrinsic value. It is often used by value investors to screen stocks quickly and compare companies within the same sector.
How the Roe Cannon Works
The model takes a company's ROE and multiplies it by its book value per share to estimate future earnings power. Investors then apply a discount rate to derive a fair value estimate. The approach highlights firms with strong equity returns and efficient capital use.
Why Investors Use the Roe Cannon
Traders and analysts use the roe cannon to identify potentially undervalued stocks with durable competitive advantages. It provides a quick filter before deeper fundamental analysis. For a detailed explanation of ROE and valuation, see Investopedia's overview of return on equity.
