A profitability ratio that shows how efficiently shareholder capital is being used.
Published: 2026-03-21
Definition
Return on equity, or ROE, measures how much net income a company generates from shareholders' equity.
Formula
ROE = Net Income / Shareholders' Equity
Why it matters
ROE shows what common equity is earning after operating costs, interest, and taxes. It is often used to judge shareholder returns, but it can be boosted by leverage, which is why it should be read alongside ratios such as Basic Earning Power.
Where to apply it
Use ROE when you care about returns on shareholder capital. Compare it with ROA and BEP to see whether high returns come from efficient operations, higher leverage, or both.