What is the difference between ROE and ROA?

What is the difference between ROE and ROA?

ROE stands for Return on Equity, while ROA stands for Return on Assets. ROE measures a company's profitability relative to shareholders' equity, whereas ROA measures profitability relative to total assets.

Why is ROE important for investors?

ROE is important because it indicates how effectively a company is using shareholders' equity to generate profits. A higher ROE suggests a more efficient company.

Can you give me an example of how to calculate ROA?

Sure! To calculate ROA, divide the net income by total assets. For example, if a company has a net income of $100,000 and total assets of $1,000,000, the ROA would be 10%.

Which metric is better for evaluating a company?

It depends on the context. ROE is better for assessing profitability from an equity perspective, while ROA provides insight into how efficiently a company uses its assets.