What is'return on equity (ROE)?

What is 'Return on Equity (ROE)'. Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE could be thought of as the return on net assets.

What is the return on equity formula?

While the simple return on equity formula is net income divided by shareholder’s equity, we can break it down further into additional drivers. As you can see in the diagram below, the return on equity formula is also a function of a firm’s return on assets (ROA) and the amount of financial leverage it has.

What is an example of a Roe formula?

Example of ROE in Use For example, imagine a company with an annual income of $1,800,000 and average shareholders' equity of $12,000,000. This company’s ROE would be as follows: ROE=\left (\frac...

What does Roe mean on a balance sheet?

Shareholders’ equity is assets minus liabilities on a firm’s balance sheet and is the accounting value that is left for shareholders should a company settle its liabilities with its reported assets. As a result, ROE = net income ÷ shareholders’ equity. (Note: ROE is not to be confused with return on total assets (ROTA).