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 each dollar of shareholders' equity generates.

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 equity investment. Higher ROE generally indicates more efficient management.

4. Using the Calculator

Tips: Enter net income and shareholders' equity in dollars. Both values must be positive, with equity greater than zero.

5. Frequently Asked Questions (FAQ)

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

Q2: Can ROE be too high?
A: Extremely high ROE may indicate excessive leverage (debt) rather than operational efficiency. Use with other metrics for full picture.

Q3: How does ROE differ from ROI?
A: ROE focuses specifically on returns generated on shareholders' equity, while ROI measures returns on any type of investment.

Q4: When is ROE most useful?
A: Most useful when comparing companies in the same industry or tracking a company's performance over time.

Q5: What affects ROE?
A: Profit margins, asset turnover, and financial leverage all affect ROE through the DuPont analysis framework.