What Is the Meaning of Return on Equity?
What Is the Meaning of Return on Equity? A measurement of financial performance known as return on equity (ROE) is obtained by dividing net income by shareholders' equity. ROE is referred to as the return on net assets since shareholders' equity is determined by deducting a company's debt from its assets. ROE is considered to be an indicator of a company's profitability and efficiency in generating profits. The higher the ROE, the more effective management is at producing income and growth from equity capital. How to Determine Return on Equity (ROE)? Any corporation can calculate its ROE in percentage form if its net income and equity are both positive levels. Before dividends given to common shareholders, after dividends to preferred shareholders, and before interest paid to lenders, net income is computed. Net income is the sum of a company's income, net expenses, and taxes for a specific time period. In order to compute average shareholders'