1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a company's profitability relative to shareholders' equity. It shows how effectively management is using a company's assets to create profits.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• Net Income — Company's total earnings after expenses and taxes
• Shareholders' Equity — Total assets minus total liabilities

Explanation: ROE is expressed as a percentage, showing how many dollars of profit are generated for each dollar of shareholders' equity.

3. Importance of ROE Calculation

Details: ROE is a key metric for investors to assess a company's profitability and efficiency in generating returns on investment. Higher ROE generally indicates more efficient management.

4. Using the Calculator

Tips: Enter net income and shareholders' equity in USD. Both values must be positive (equity must be greater than zero).

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, ROE between 15-20% is considered good, but this varies by industry. Compare with industry averages for meaningful analysis.

Q2: Can ROE be too high?
A: Yes, extremely high ROE may indicate excessive leverage (high debt levels) rather than true operational efficiency.

Q3: How does ROE differ from ROI?
A: ROI measures return on total investment, while ROE specifically measures return on shareholders' equity investment.

Q4: What affects ROE?
A: Profit margins, asset turnover, and financial leverage all impact ROE. This is explained by the DuPont analysis formula.

Q5: Should ROE be used alone?
A: No, it should be used with other financial metrics and compared to industry benchmarks for complete analysis.