1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a company's profitability by showing 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 — The company's total earnings after all expenses and taxes
• Shareholders' Equity — Total assets minus total liabilities (also called book value)

Explanation: ROE shows how effectively management is using shareholders' capital to generate 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 equity investment. It's used to compare performance between companies in the same industry.

4. Using the Calculator

Tips: Enter net income and shareholders' equity in the same currency (typically USD). Both values must be positive numbers. The calculator will automatically compute the ROE percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, an ROE of 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 debt (since equity = assets - liabilities) or inconsistent profits.

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 type of investment.

Q4: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but annual ROE is most meaningful for long-term analysis.

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