1. What is Return on Equity (ROE)?

Definition: ROE measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Purpose: It helps investors assess how effectively management is using equity financing to grow the business.

2. How Is ROE Calculated?

The calculator uses the formula:

Where:

• \( ROE \) — Return on Equity (percentage)
• \( \text{Net Income} \) — After-tax profit (dollars)
• \( \text{Shareholders' Equity} \) — Total assets minus total liabilities (dollars)

Explanation: The formula shows what percentage return the company generated on the equity invested by shareholders.

3. Importance of ROE Calculation

Details: ROE is a key metric for comparing profitability between companies in the same industry and assessing management efficiency.

4. Using the Calculator

Tips: Enter the net income (after all expenses and taxes) and total shareholders' equity (from balance sheet). Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROE percentage?
A: Generally, ROE between 15-20% is considered good, but this varies by industry.

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

Q3: Why multiply by 100 in the formula?
A: This converts the decimal result to a percentage for easier interpretation.

Q4: Where do I find net income and shareholders' equity?
A: Both figures are reported on a company's financial statements (income statement and balance sheet).

Q5: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, or annually for performance reviews.