MentisCell – ROE (Return on Equity)
Summary
ROE (Return on Equity) is a financial performance metric that measures a company’s profitability relative to shareholders’ equity. It indicates how effectively management is using equity capital to generate net income, expressed as a percentage.
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Content
Return on Equity (ROE) is widely used by investors and analysts to evaluate the efficiency of a company in generating profits from shareholders’ investments.
It provides insight into profitability, financial health, and management effectiveness.
Main functions
- Profitability measurement: assess how much profit is generated per unit of equity.
- Investor evaluation: compare companies within the same industry.
- Management performance: determine how effectively equity capital is deployed.
- Decision support: guide investment and financing strategies.
- Benchmarking: track performance against peers and historical trends.
Formula
Where:
- Net Income = Profit after taxes and expenses.
- Shareholders’ Equity = Assets – Liabilities (book value of equity).
Examples
- A company with $2 million net income and $10 million equity:
- If two firms in the same industry have ROEs of 15% and 25%, the latter is generally considered more efficient in generating returns from equity capital.
Essence
- Measures profitability relative to equity capital.
- Expressed as a percentage for easy comparison.
- Indicates management efficiency and financial health.
- Key metric for investors and analysts.
Interconnections
- ROI — ROI measures overall investment efficiency, while ROE focuses on equity capital.
- KPI — ROE can be tracked as a KPI for financial performance.
- OKR — ROE may serve as a key result for strategic financial objectives.
- BIA — ROE can justify investments in resilience by showing equity efficiency.
Tags
#roe #return-on-equity #finance #investment #profitability #measurement
Contributors
Created with the support of Microsoft Copilot on 2025-11-10.
Validation and editorial direction by Jorge Godoy.