Return on equity
Also called: ROE
Net profit divided by average shareholders' equity, showing how much profit a company earns on the money its shareholders have put in and left in the business.
ROE can be split into net margin, asset turnover and financial leverage. Because borrowing and buybacks shrink equity, a high ROE can come from debt rather than a better business, so check how it is earned.
Example
Net profit of ₹90 crore on average equity of ₹450 crore is an ROE of 20%.
Learn more in these lessons
- Return on equity (ROE)What does return on equity tell you, and when does it mislead?
- Return on assetsWhat does return on assets tell you, and when is it the right measure?
- The P/B ratioWhat does the price-to-book ratio tell you, and when should you use it?
Related terms
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