What is return on equity?
Return on equity (ROE) is an important measure of profitability for a company’s shareholders. In accounting terms, ROE represents the amount of profit earned in comparison to the amount of shareholder equity invested into the business.
How to calculate return on equity?
Return on equity is calculated by dividing net profits by total shareholder equity and producing a percentage figure. ROE gives an indication of how efficiently asset capital has been put to use and can be used as part of a larger assessment when considering a stock investment.
Return on Equity Formula
ROE = Net income/total shareholder’s equity