Return on Equity (ROE)
Investor Term:
ROE
Definition:
Return on equity (ROE) is a measure of how well a company is using its equity (the money that shareholders have invested in the company) to generate profits. It is calculated by dividing net income by shareholders' equity.
Formula:
ROE = Net Income / Shareholders' Equity
Example:
For example, if a company has net income of $10 million and shareholders' equity of $50 million, then its ROE would be 20%. This means that the company is generating $2 of profit for every $1 of equity that it has.