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Return on Equity (ROE)
Definition
Return on Equity is a ratio that expresses the profitability of a firm as a percentage of stock holder's equity. The ratio is calculated by dividing the firm's net income (after preferred dividends but before common dividends) by the common stock equity.
Using the term Return on Equity (ROE) :
Return on Equity (ROE) is a percentage important to the stock holder. It tells them how well their money is doing. Or, perhaps more appropriately, how well the company management is utilizing their money. It is a comparison ratio that an investor should compare to other firms in the same industry.
Pay Special Attention To :
This ratio is backward looking so always try to think about the future and particularly how the company might drive ROE growth in the future.
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Related terms
Return on Investment (ROI)
