ROE

ROE Full Form: Return on Equity

What is ROE ?

Return on equity (ROE) is an important measure of profitability for a company’s shareholders. In accounting terms, ROE represents the amount of profit earned in comparison to the amount of shareholder equity invested into the business.

How to calculate return on equity?

Return on equity is calculated by dividing net profits by total shareholder equity and producing a percentage figure. ROE gives an indication of how efficiently asset capital has been put to use and can be used as part of a larger assessment when considering a stock investment.

Return on Equity Formula

The formula for ROE is:

ROE = Net income/total shareholder’s equity

Where:

• Net Income: Total profit a company makes after all expenses and taxes.

• Shareholders' Equity: The value of a company's assets after subtracting total liabilities

Example:

If a company has a net income of Rs 100,000 and shareholders' equity of Rs 500,000, the ROE would be:

ROE=100,000/ 500,000=0.20 or 20%