1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a corporation's profitability by revealing 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
• \( \text{Shareholders' Equity} \) — Total assets minus total liabilities

Explanation: The equation shows what percentage return the company generates on shareholders' investment.

3. Importance of ROE Calculation

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

4. Using the Calculator

Tips: Enter net income and shareholders' equity in dollars. Both values must be positive numbers.

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 meaningful analysis.

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

Q3: How does ROE differ from ROI?
A: ROI measures return on all invested capital, while ROE specifically measures return on shareholders' equity.

Q4: What time period should be used?
A: Typically annual figures are used, but quarterly ROE can be calculated for interim analysis.

Q5: What are limitations of ROE?
A: ROE doesn't account for debt levels and can be manipulated through share buybacks or accounting methods.