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:

• \( \text{Net Income} \) — Company's total earnings after expenses and taxes
• \( \text{Equity} \) — Shareholders' equity (total assets minus total liabilities)

Explanation: ROE is expressed as a percentage. A higher ROE indicates more efficient use of equity capital.

3. Importance of ROE Calculation

Details: ROE is a key metric for investors to assess a company's profitability and compare it with peers. It helps evaluate management effectiveness and growth potential.

4. Using the Calculator

Tips: Enter net income and equity in the same currency units. Both values must be positive, and equity cannot be zero.

5. Frequently Asked Questions (FAQ)

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

Q2: Can ROE be too high?
A: Exceptionally high ROE might indicate excessive leverage (debt) rather than true operational efficiency.

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

Q4: Why might ROE fluctuate?
A: Changes in net income, share buybacks, dividend payments, or changes in debt levels can all affect ROE.

Q5: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but annual ROE provides a more stable picture.