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 or decimal.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• Net Income — Company's total earnings after expenses and taxes (USD)
• Shareholders' Equity — Total assets minus total liabilities (USD)

Explanation: ROE shows how effectively management is using shareholders' funds to generate profits.

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 shareholders' investments. It's used to compare performance between companies in the same industry.

4. Using the Calculator

Tips: Enter net income and shareholders' equity in USD. Both values must be positive, and equity must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, an ROE between 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 income is negative (company is losing money) while equity is positive, ROE will be negative.

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

Q4: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but can be calculated whenever financial data is available.

Q5: What are limitations of ROE?
A: ROE can be artificially inflated by high debt levels (financial leverage) and doesn't account for risk. Should be used with other metrics.