1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a company's profitability by showing how much profit a company generates with the money shareholders have invested. It's expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• \( \text{Net Income} \) — Company's total earnings after expenses and taxes
• \( \text{Equity} \) — Shareholders' equity (total assets minus total liabilities)

Explanation: ROE shows how effectively management is using shareholders' funds to generate profits.

3. Importance of ROE Calculation

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

4. Using the Calculator

Tips: Enter net income and equity in dollars. Both values must be positive numbers. The result will be shown as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, ROE between 15-20% is considered good, but this varies by industry. Compare with industry averages for better context.

Q2: Can ROE be too high?
A: Exceptionally high ROE might indicate excessive leverage (debt) rather than true operational efficiency.

Q3: What's the difference between ROE and ROI?
A: ROE focuses specifically on equity investments, while ROI (Return on Investment) can apply to any type of investment.

Q4: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but annual ROE provides better long-term perspective.

Q5: What affects ROE?
A: Profit margins, asset turnover, financial leverage, and tax efficiency all influence ROE.