What is return on equity and why is it important?

What is return on equity and why is it important?

Return on equity (ROE) measures a company's profitability relative to shareholders' equity. It's important because it indicates how effectively management is using equity financing to generate profits.

How do you calculate return on equity?

ROE is calculated by dividing net income by shareholders' equity. The formula is: ROE = Net Income / Shareholders' Equity.

What is considered a good return on equity?

A good ROE typically ranges from 15% to 20%, but it can vary by industry. Higher values indicate more efficient use of equity.

Can you give me an example of a company with high ROE?

Sure! Companies like Apple and Google often report high ROE, reflecting their strong profitability and efficient use of equity.

What factors can affect return on equity?

Factors affecting ROE include net income, changes in equity, company debt levels, and overall market conditions.