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.