Return on Equity

Overview

What if you could measure how well a company turns your investment into profit? That’s where Return on Equity comes in. Used by investors and managers alike, ROE reveals how efficiently a company generates profit from shareholder equity.

Key Components

Visualizing ROE as a simple formula—net income divided by shareholder equity—shows its core structure. To apply it, take a company’s net income from the income statement and divide it by its total equity from the balance sheet.

How to Apply

A high ROE means strong profitability, but it’s best compared across similar companies.

Key Insight

In just a few numbers, ROE tells a powerful story about financial health and performance.