Return on Equity Interpretation
What is Return on Equity
Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit the company generates with the money invested by common stock owners.
Return on Equity formula is:
Return on Equity is also known as Return on Net Worth.
Return on Equity Analysis
Return on Equity shows how many dollars of earnings result from each dollar of equity.
Net income is considered for the full fiscal year after taxes and preferred stock dividends but before common stock dividends. Shareholders' Equity does not include preferred stocks and is used as an annual average.
Return on Equity varies substantially across different industries. Therefore, it is recommended to compare return on equity against company's previous values or return of a similar company.
Some industries have high return on equity because they require less capital invested. Other industries require large infrastructure build before generating any revenue. It is not a fair conclusion that the industries with a higher Return on Equity ratio are better investment than the lower ones. Generally, the industries which are capital-intensive and with a low return on equity have a limited competition. But, the industries with high return on equity and small assets bases have a much higher competition because it is a lot easier to start a business within those industries.
Return on Equity is one of the profitability ratios and is usually expressed as a percentage.
Return on Equity calculator shows company's profitability by measuring how much profit the business generates with its average shareholders' equity. Return on Equity formula is:
Return on Equity calculator is part of the Online financial ratios calculators, complements of our consulting team.
- Complementarily, in order to calculate the Return on Equity for your business, we offer a calculator free of charge.
You may link to this calculator from your website as long as you give proper credit to C. C. D. Consultants Inc. and there exists a visible link to our website.
To link to our Return on Equity Calculator from your website or blog, just copy the following html code:
<a href="http://www.ccdconsultants.com/calculators/financial-ratios/return-on-equity-calculator-and-interpretation">Return on Equity Calculator and Interpretation</a>
- Although C. C. D. Consultants Inc.'s personnel has verified and validated the Return on Equity calculator, C. C. D. Consultants Inc. is not responsible for any outcome derived from its use. The use of Return on Equity calculator is the sole responsibility of the user and the outcome is not meant to be used for legal, tax, or investment advice.
Definitions and terms used in Return on Equity Calculator
- Net Income
- The income that a company has after subtracting costs and expenses from the total revenue. Net income is sometimes called the bottom line.
- Also known as earnings, net earnings or net profit.
- Shareholders' Equity
- The residual interest in the assets of the enterprise after liabilities are subtracted from assets.