Return on equity (ROE)
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
Net income divided by average common equity.
Return on equity (ROE) in plain English
Return on equity, or ROE, measures how much profit a company generates for every dollar the owners have actually put in or left in the business. You take net income (the yearly profit) and divide it by the owners' stake (common equity — the part of the company that truly belongs to shareholders after debts). If you invested $1,000 in your own shop and it earned $150 in a year, that's a 15% ROE. It's one of the most-watched numbers in finance because it tells owners how hard their own money is working for them.
Also called: ROE
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