This question is about to analyze the financials of a company we invest in:
Shareholder's Equity is defined by Asset - Liability. Let's say if the company is started with $100 million, and it earns $0 million. Now the bank loaned the company $100 million (maybe because the company has a patent), but then the company spent about $100 million as expenses over 3 years to attract businesses.
After 3 years, the company earns $10 million, and the asset is $100 million, and liability is $100 million, then isn't it true that the ROE is infinite or (or even minus infinite?). If the asset is $101 million and liability is $100 million, then ROE is $10 million / $1 million = 1000%, and if the asset is $99 million and the liability is $100 million, then the ROE is $10 million / (-$1 million) = -1000%. But we almost never see ROE greater than 100% or negative, but usually is seen as 40% at most and is considered to be spectacular. Why isn't ROE much larger such as 100% or 300% or negative?