Picture source: Veectezy.com, 2025

Return on Equity (ROE) and Return on Assets (ROA) are key financial performance indicators that help investors and stakeholders assess how effectively a company is using its resources. ROE measures a company’s profitability relative to its shareholders’ equity, indicating how much profit it generates with the money invested by its owners. A high return on equity (ROE) suggests efficient management and strong financial returns for shareholders. ROA, on the other hand, shows how well a company utilizes its total assets to generate earnings. It is beneficial for comparing companies in asset-heavy industries. Together, these ratios provide a comprehensive view of operational efficiency and financial health, guiding investment decisions and internal performance evaluation.

As of 17 June 2025, firms such as PT Adaro Andalan Indonesia Tbk., Astra Agro Lestari Tbk., Mahaka Media Tbk., Asuransi Bina Dana Arta Tbk., and ABM Investama Tbk., show the highest Return on Equity (ROE) and Return on Assets (ROA). However, it’s important to interpret these figures with caution. For PT Adaro Andalan Indonesia Tbk. and ABM Investama Tbk., which operate in the energy and mining sectors, the surge in global coal and energy prices likely contributed to windfall profits, thereby significantly boosting both ROE and ROA. Their asset bases may also be efficiently managed, with high utilization and lean operations, driving high returns from limited asset growth. Astra Agro Lestari Tbk., as a major player in the palm oil industry, may benefit from rising commodity prices, increased export demand, and favorable exchange rates. High commodity margins can significantly improve net income without needing proportional increases in equity or assets, elevating ROE and ROA. For Mahaka Media Tbk. and Asuransi Bina Dana Arta Tbk., the high ROE and ROA may be influenced by non-operational or extraordinary income, asset write-offs, or capital restructuring (e.g., asset sales, debt reduction, or shrinking equity base). In some cases, firms with special notations (such as Mahaka) may have low equity due to past losses, so even small profits can lead to an unusually high ROE—this can be misleading and should be interpreted cautiously. In summary, high ROE and ROA in these firms may reflect strong profitability, efficient asset utilization, or temporary financial effects; investors should analyze the underlying components to distinguish between sustainable performance and short-term spikes.

For investors, high Return on Equity (ROE) and Return on Assets (ROA) can signal both opportunity and risk, depending on the context behind the figures. The positive implications are (1) Efficient Management, where a high ROE and ROA often indicate that a company is efficiently managing its capital and assets to generate profits. This can attract investors seeking strong returns; (2) Profitability Potential in which these ratios suggest the company can deliver strong earnings relative to its resources, potentially leading to capital gains and dividends; (3) Competitive Advantage in which firms with consistently high ROE and ROA may have operational advantages—such as strong market position, cost efficiency, or pricing power—that support long-term value creation. However, there are cautionary considerations such as (1) Sustainability of Performance in which if high returns are driven by one-time gains, asset revaluation, or shrinking equity base (e.g., due to accumulated losses), the performance may not be sustainable; (2) Risk of Financial Distress in which in firms like Mahaka Media Tbk. or Asuransi Bina Dana Arta Tbk., high ratios could reflect a recovery from previous distress, rather than strong fundamentals; (3) Volatility and Special Notation in which some firms with high ROE/ROA may also carry BEI’s special notations (e.g., “P,” “S”, “E”), signaling potential governance, liquidity, or going concern issues—posing higher investment risk.

High ROE and ROA are valuable signals, but they must be analyzed in context. Investors should not rely solely on these ratios; instead, they should conduct a thorough review of financial statements, industry conditions, and corporate governance before making decisions. In some cases, high returns may offer a substantial upside; in others, they may be a warning sign of unsustainable or risky conditions.