174 The Sector Strategist This is expressed as a percentage and is a measure of how effec- tively a company's earnings stream is being deployed. R.O.E. is one of the most important profitability metrics. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. A business that has a high return on equity is more likely to be capable of generating significant cash internally. For the most part, the higher a company's return on equity compared with others in its industry, the better. For most of the 20th cen- tury, the S&P 500 Index averaged R.O.E.s of 10 to 15%. During the 1990s, the average return on equity was in excess of 20%. Of course, this was an anomaly. Expect the average R.O.E. to return to the long-term averages. All other things being equal, a higher number denotes better use of funds. 6. FREE CASH FLOW YIELD RATIO