Return on Equity (ROE) is a key financial metric that measures a company's ability to generate profit from shareholders' equity. It is calculated by dividing net income by shareholders' equity, expressed as a percentage. ROE is crucial in determining stock quality for several reasons.

Firstly, a high ROE indicates efficient use of equity capital, suggesting that the company is effectively generating profits from its investments. This efficiency often reflects strong management and operational capabilities, making the company an attractive investment.

Secondly, ROE can help investors compare profitability across companies within the same industry. Since it accounts for equity, it provides a normalized view of profitability, allowing for more accurate comparisons regardless of company size.

Thirdly, consistent ROE over time indicates stable financial performance and reliable profit generation. Companies with stable or improving ROE are often considered high-quality as they demonstrate the ability to sustain profitability in various economic conditions.

However, it is important to consider the context of ROE. A very high ROE might indicate excessive leverage rather than true operational efficiency. Therefore, investors should analyze ROE alongside other financial metrics, such as debt-to-equity ratio and return on assets (ROA), to get a comprehensive view of a company’s financial health.

In summary, ROE plays a significant role in determining stock quality by highlighting a company's profitability, operational efficiency, and financial stability, making it a vital metric for investors.