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 a net income of $10 million and shareholders' equity of $50 million, its ROE would be 20%. This means the company generates $2 of profit for every $1 of its equity.