Return on Equity (ROE)

Posted in Finance, Accounting and Economics Terms, Total Reads: 876
Advertisements

Definition: Return on Equity (ROE)

Return on Equity is one of the profitability ratios. It shows us how much of the net income is generated from the equity of a company. If the ROE is high it is better for the companies investors. It is calculated as:


ROE        =             Net Income

                     Average Total Equity

Example:

Company A is having equity (including Preferred Stock)  of 1000 crore in year 2004 and 2000 crore in year 2005. Its net income at end of 2005 is 100 crore.

Average total equity of company A  = (1000 + 2000)/2

                                                   = 1500 crore

Return on Equity  =   100/1500

                          = 0.067 = 6.7%

Search & Explore : Management Dictionary

Browse definitions and meaning of more concepts and terms similar to Return on Equity (ROE). The Management Dictionary covers definitions and overview of over 7000 business concepts from 6 categories.

Advertisements



Share this Page on:

Similar Definitions from same Category: