Return on equity (ROE)

Definition

Return on Equity measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. It is calculated as net income divided by shareholder's equity.

Related terms

Net Income:

The total profit of a company after all expenses and taxes have been deducted from revenues.

Shareholder's Equity:

The residual interest in the assets of a company after deducting liabilities, representing what the shareholders "own".

Profitability Ratios:

Financial metrics used to evaluate a business's ability to generate profit relative to its revenue, operating costs, balance sheet assets, or shareholders' equity