1. What is Return On Equity?

Return On Equity (ROE) is a financial ratio that measures a company's profitability relative to shareholder equity. It shows how effectively management is using a company's assets to create profits.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• Net Income — Company's total earnings after all expenses and taxes
• Equity — Shareholder's equity or net assets

Explanation: The formula calculates what percentage return the company generates on the equity invested by shareholders.

3. Importance of ROE Calculation

Details: ROE is a key metric for investors to assess a company's profitability and efficiency in generating returns. Higher ROE generally indicates more efficient use of equity capital.

4. Using the Calculator

Tips: Enter net income and equity amounts in dollars. Both values must be positive numbers, with equity greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE percentage?
A: Generally, ROE above 15% is considered good, but this varies by industry. Compare with industry averages for better context.

Q2: Can ROE be too high?
A: Extremely high ROE might indicate excessive leverage (debt) rather than operational efficiency, which could be risky.

Q3: How often should ROE be calculated?
A: ROE is typically calculated quarterly and annually to track performance trends over time.

Q4: What's the difference between ROE and ROI?
A: ROE measures return specifically on shareholder equity, while ROI (Return on Investment) measures return on total invested capital.

Q5: Does ROE work for all company types?
A: ROE is most meaningful for companies with significant equity. For highly leveraged companies, other metrics like ROA might be more appropriate.