Ratio of Return on Equity (ROE)

The Return on Equity (ROE) measures how effectively a company uses shareholders' investments to generate profit. It is calculated by dividing the company's net income by shareholders’ equity (the owners' stake in the company). A higher ROE indicates the company is producing more profit from each dollar of invested shareholders' money, reflecting good management and financial health. Investors often use ROE to compare companies within the same industry, assessing which are most efficient at turning investments into earnings.