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's a key metric for investors to assess how effectively management is using equity financing to grow the business.

2. How Does the ROE Calculator Work?

The calculator uses the formula:

Where:

• \( ROE \) — Return on Equity (percentage)
• \( \text{Net Income} \) — Company's total earnings after expenses (dollars)
• \( \text{Shareholders' Equity} \) — Total assets minus total liabilities (dollars)

Explanation: The formula shows what percentage return the company generated on shareholders' investment.

3. Importance of ROE Calculation

Details: ROE helps investors compare the profitability of companies in the same industry. Higher ROE indicates more efficient use of equity.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

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

Q2: Can ROE be too high?
A: Yes, extremely high ROE might indicate excessive debt or inconsistent profits.

Q3: Where do I find net income and shareholders' equity?
A: Both figures are reported on a company's income statement and balance sheet.

Q4: How does ROE differ from ROI?
A: ROE measures return on shareholders' equity specifically, while ROI measures return on any investment.

Q5: Should I compare ROE across different industries?
A: No, ROE comparisons are most meaningful within the same industry due to different capital structures.