What is the difference between ROI and ROE?
An example of an AI chatbot conversation about ROI and ROE differences.
What is the difference between ROI and ROE?
ROI (Return on Investment) measures the profitability of an investment relative to its cost, while ROE (Return on Equity) measures the profitability relative to shareholders' equity.
Can you give me an example of how to calculate both?
Sure! For ROI, if you invest $100 and earn $150, ROI = (150-100)/100 = 50%. For ROE, if a company has $200 in equity and earns $50, ROE = 50/200 = 25%.
Which one is more important for investors?
It depends on the context. ROI is great for assessing specific investments, while ROE is crucial for evaluating a company's efficiency in generating profits from equity.
Are there any limitations to using these metrics?
Yes, ROI can be misleading if not considering time, and ROE can be inflated by high debt levels. It's important to use them alongside other metrics.
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