Understanding ROE (Part 6)

In Part 5, I discussed the misleading return on equity (ROE) for BKNG. Today I want to look at Starbucks (SBUX).

Recall with BKNG that ROE can be confusing because:

• Standard financial formulas crash when shareholder equity [the denominator; see (1) in Part 1] is negative. Some platforms will show “N/A,” while others might show a massive positive or negative percentage based on automated math calculation failing to account for the negative equity context.
• Negative equity suggests a company is near bankruptcy. BKNG, however, is highly profitable with ~$8B in annual free cash flow. The negative equity is a management decision rather than a sign of failure.
• BKNG has spent over $52B on share buybacks. Buybacks reduce shareholder equity artificially inflating (or breaking) ROE calculation making it impossible to use for comparison with companies employing different capital structures.

Google AI reports SBUX 2026 ROE of -17%. ROE is +16% for ’25—a sharp decline from the 12-month average of +32%. Before shifting to negative shareholder equity (’19), its high positive ROE peaks > 386% in ’18 due to high leverage.

To illuminate and clarify, FinanceCharts.com (cited by Google AI) literally says:

      > The return on equity (roe) for Starbucks (SBUX) stock is 16.32% as of
      > Wednesday, April 22 2026. It’s worsened by -49.51% from its 12-month
      > average of 32.33%. The 5 year average return on equity (roe) is 43.04%.

Worsening by a negative value is the same as improving by the positive. 16.32% worsening by negative 49.51% means it has increased from a 12-month average of 16.32% – 49.51% = -33.19%: inconsistent with the above-stated +32.33%. I consider this a prime example of how broken some of these math algorithms can be when shareholder equity is negative.

Like BKNG, persistent negative equity is a result of deliberate capital allocation strategies. First, SBUX historically returns significant capital to shareholders via share buybacks often funded using debt. Second, SBUX maintains a streak of over 60 consecutive quarters of dividend payouts that further reduce shareholder equity. Finally, long-term debt has climbed to over $15B as the company invests in store expansions and its “Back to Starbucks” turnaround strategy.

Given the distortion in ROE, a stock analyst is advised to use other efficiency metrics. ROA (see Parts 3 and 4) is currently +4.3%. This measures profit against the total asset base rather than just shareholder equity. Return on Invested Capital (ROIC; see Part 2) is currently +6.8%. This is another more reliable metric for SBUX that accounts for both debt and equity.

For more details on financial health, Google AI suggests tracking SBUX ROE trends on Macrotrends or viewing quarterly growth performance on FinanceCharts.com. You can also read the latest valuation reports on Yahoo Finance or explore long-term return trends on Stock Analysis on Net (https://www.stock-analysis-on.net/).

I hope to conclude next time with one more case study.

Understanding ROE (Part 5)

I want to finish the mini-series by presenting some cases where return on equity (ROE) seems nonsensical and may be misinterpreted.

The first case is Booking Holdings (BKNG). Per Google AI, TTM ROE is 97% as of Apr 2026.

In my opinion, 97% ROE falls under the “too good to be true” category, but this is not unusual for BKNG. Pre-Pandemic (2019), ROE is a more “normal” but still strong 82%. In ’22, ROE is 110%, a sharp increase from previous years driven by recovery in travel demand and increased financial leverage. ROE fluctuates wildly from ’23–’25, often appearing highly positive (e.g. 156% in ’23).

ROE is a complex and potentially misleading metric for BKNG because it operates with negative shareholder equity. The impressive percentage turned up by some traditional screens is a mathematical quirk of having a negative denominator [recall (1) here]. BKNG reports shareholder equity of -$5.6B in ’25 largely driven by aggressive share buybacks and debt-financed capital allocation. The negative shareholder equity is not due to operational losses, though. In fact, BKNG remains highly profitable with $5.4B TTM net income.

Despite negative shareholder equity, some sites will report positive ROE due to a programming shortfall. It should be reported as a negative figure or “N/A.” Instead, sites like FinanceCharts.com use absolute values or specific internal logic to show a performance percentage when there really isn’t one. The positive percentage is a ghost metric.

Platforms such as Wisesheets.io report the same data as negative ROE or “N/A” following standard application of the formula with shareholder equity of -$5.6B (i.e. a shareholder deficit) at the end of 2025 divided into positive net income.

The reality is a highly profitable BKNG [$5.4B net income for ’25, as mentioned above] that has wiped out its equity book value through massive share buybacks rather than business losses. Negative equity is a deliberate management decision rather than a sign of operational failure.

For stock analysis when shareholder equity is negative, it can help to:

• Use Return on Invested Capital (ROIC) to see how well the company uses all its capital (equity and debt). BKNG recently reported an ROIC of 43.7%, which remains a valid and strongly positive number.
• Focus on cash flow metrics like Free Cash Flow (FCF) and FCF Yield to study how the company generates cash regardless of its accounting book value. BKNG grew FCF 15.1% in 2025.
• Evaluate solvency by interest coverage rather than Debt-to-Equity. 13.6 interest coverage indicates well-managed debt.

I will continue next time.