Return on Equity (ROE) is a financial metric that measures a company’s profitability in relation to shareholders’ equity. It shows how effectively a business uses the money invested by its owners to generate profits.
ROE is calculated by dividing net income by average shareholders’ equity, and it’s expressed as a percentage.
A higher ROE indicates that the company is efficiently generating earnings from its equity base, making it an important indicator for investors evaluating a company’s financial health and performance.
However, ROE should be compared with industry averages and considered alongside other metrics for a full picture of a company’s profitability.