What Is Return on Equity (ROE)?

Return on equity (ROE) is a measure of a company’s financial performance. It is calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE is a way of showing a company’s return on net assets.

Return on equity is considered a gauge of a corporation’s profitability and how efficiently it generates those profits. The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.