Return on Equity (ROE)
How much profit does a company generate from shareholders' equity?
Definition
ROE measures the profitability of a company relative to the equity held by common shareholders. It is one of the most widely used profitability metrics.
Formula
Where:
- Net Income: Net Income to Common Stockholders (after preferred dividends)
- Equity: Total Stockholders' Equity
- Preferred Stock: Preferred Stock value (if any)
Interpretation
| Range | Assessment |
|---|---|
| > 15% | Strong — consistently generates value for shareholders |
| 10% – 15% | Adequate — acceptable for most industries |
| < 10% | Weak — may indicate inefficient capital use |
Caution: High ROE driven by excessive leverage (high D/E) is not inherently positive. Always check ROE alongside D/E and ROIC.
Industry Routing
Available for all industries (Industrial, Banking, Insurance).
In Finsco
Computed by the audit returns command. Displayed in the Returns dimension summary.
audit returns