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Return on Equity (ROE)
What is Return on Equity (ROE)?
Calculation Method
Return on Equity (ROE) measures how effectively a company uses shareholders' equity to generate profit. It is a key indicator of profitability and management efficiency.
Formula
The formula for calculating ROE is:
ROE = (Net Income / Shareholders' Equity) * 100%
Key Terms Explained
- Net Income
- The total earnings of the company after paying all expenses, taxes, and interest.
- Shareholders' Equity
- The company's total assets minus total liabilities, representing the shareholders' residual interest.
