return on equity

Definition

Return on Equity
Return on Equity is a profitability ratio that indicates how efficiently a company uses its shareholders’ equity to generate net income. It is computed by dividing net income by average shareholders’ equity over a period. ROE is a key measure of financial performance, as it shows the return investors can expect on their invested capital. A higher ROE suggests that the company is effectively reinvesting earnings into growth and managing its resources well, while a lower ROE may reflect inefficiencies or operational challenges. Investors rely on ROE to compare the performance of companies within the same industry, using it as a benchmark for long-term investment quality and capital management efficiency.

See also