1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. It's expressed as a percentage and is calculated by dividing net income by shareholders' equity.

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 shows how effectively management is using a company's assets to create profits. Higher ROE indicates more efficient use of 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 shareholders' investments. It's used to compare companies in the same industry.

4. Using the Calculator

Tips: Enter net income and shareholders' equity in dollars. Both values must be positive, and equity cannot be 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 might indicate excessive leverage (high debt levels) rather than true operational efficiency.

Q3: What's the difference between ROE and ROI?
A: ROE measures return specifically on shareholders' equity, while ROI (Return on Investment) measures return on any invested capital.

Q4: How often should ROE be calculated?
A: Typically calculated quarterly or annually, along with financial statements. Trend analysis over time is most valuable.

Q5: What affects ROE?
A: Profit margins, asset turnover, financial leverage, tax rates, and interest rates all influence ROE.