1. What is Return on Equity (ROE)?

Return on Equity (ROE) is a financial ratio that measures a company's profitability in relation to shareholders' equity. It shows how effectively management is using a company's assets to create profits.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• Net Income — The company's total profit after all expenses
• Shareholders' Equity — Total assets minus total liabilities

Explanation: ROE is expressed as a percentage and indicates how much profit each dollar of shareholders' equity generates.

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 investment. Higher ROE generally indicates more efficient management.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, ROE between 15-20% is considered good, but this varies by industry. Compare with industry averages for meaningful analysis.

Q2: Can ROE be too high?
A: Exceptionally high ROE may indicate excessive leverage (debt) rather than operational efficiency. Always analyze in context with other financial metrics.

Q3: How does ROE differ from ROI?
A: ROI measures return on total investment, while ROE specifically measures return on shareholders' equity investment.

Q4: What are limitations of ROE?
A: ROE doesn't account for debt levels and can be manipulated through share buybacks or excessive leverage.

Q5: How often should ROE be calculated?
A: Typically calculated quarterly with financial statements, but annual ROE provides better perspective on long-term performance.