What is ROE?

ROE is net profit divided by average shareholders' equity. It measures how efficiently a company uses shareholder capital.

Quick Definition

ROE (Return on Equity) = Net Income ÷ Shareholders' Equity. It measures how efficiently management generates profit from capital. Above 15% is generally considered strong.

Use this concept with tools

Inflation-adjusted Return

Nominal return vs purchasing-power return.

CAGR

Convert between annualized rate and final amount.

Compound Interest

Growth with recurring contributions and compounding frequency.

Related concepts

What is the P/E ratio?

P/E ratio = Share Price ÷ Earnings Per Share. It shows how much investors pay for each dollar of profit. A high P/E implies high growth expectations.

What is free cash flow?

Free Cash Flow (FCF) = Operating Cash Flow − Capital Expenditures. It is the actual cash a business generates after maintaining its assets. Warren Buffett considers FCF the true measure of a company's earning power.

What is the difference between gross margin and net margin?

Gross margin = (Revenue − COGS) ÷ Revenue. Net margin = Net Income ÷ Revenue. Gross margin shows production efficiency; net margin shows overall profitability after all expenses and taxes.