1. What is Return on Equity?

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:

• Net Income — Company's total earnings or profit (currency)
• Equity — Shareholders' equity (currency)

Explanation: ROE indicates how effectively management is using a company's assets to create profits.

3. Importance of ROE Calculation

Details: ROE is a key metric for investors to assess a company's profitability and efficiency at generating profits from equity financing. Higher ROE generally indicates more efficient management.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

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

Q2: Can ROE be negative?
A: Yes, if net income is negative, ROE will be negative, indicating the company is losing money.

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

Q4: Why might a company have high ROE?
A: High ROE can result from efficient operations, high leverage (debt), or both. It's important to analyze the components.

Q5: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but can be calculated whenever financial data is available.