1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a company's profitability relative to shareholders' equity. It shows how effectively management is using shareholders' investments to generate profits.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• \( Net\ Profit \) — Company's net income after all expenses and taxes
• \( Shareholders'\ Equity \) — Total assets minus total liabilities

Explanation: ROE shows what percentage return the company generates on shareholders' investments.

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. It's often used to compare companies within the same industry.

4. Using the Calculator

Tips: Enter net profit and shareholders' equity in the same currency units. Both values must be positive, with shareholders' equity greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, an ROE of 15-20% is considered good, but this varies by industry. Compare with industry averages for meaningful analysis.

Q2: Can ROE be negative?
A: Yes, if net profit is negative (company is losing money), ROE will be negative, indicating poor financial performance.

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

Q4: Why might a high ROE not always be good?
A: Extremely high ROE might indicate excessive leverage (high debt levels) rather than true operational efficiency.

Q5: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but can be calculated whenever financial data is available for meaningful period-to-period comparisons.