Return on equity
Net income divided by average shareholders' equity.
Plain languagePractical exampleConnected reading
01
What is it?
Net income divided by average shareholders' equity.
02
Why does it matter?
It shows how efficiently equity is used, but is influenced by leverage.
03
How should it be read?
Read it with margins, asset turnover, leverage and equity movements.
04
Common mistake
Calling a high ROE superior quality without examining leverage or a thin equity base.
A simple example
Net income of 20 million on average equity of 100 million gives a 20% ROE.