Return on Equity, or ROE, is an indicator of the profitability of a firm relative to the shareholders equity of the firm. The calculation for ROE is:

  • Net Income / Shareholders Equity

Return on Equity is used to assess how efficiently the investment by shareholders is being used to produce profits, and it can be compared between similar companies to give an idea of the relative performance and efficiency of a firm. The higher the return on equity, the more efficiently it is using its money.

Related Terms

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