Return on Equity
ROEHow efficiently a company uses shareholders' money to earn profits
Definition
Return on Equity measures how much profit a company generates for every dollar of shareholders' equity (money shareholders have invested). It's a key indicator of management efficiency.
Net Income ÷ Average Shareholders' Equity × 100
Example
If a company earns $5B in net income and shareholders have $25B of equity invested, ROE = 20%. For every $100 shareholders have in the business, the company earns $20 in profit.