1. What is Return on Common Equity?

Definition: Return on Equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Purpose: It helps investors assess how effectively management is using equity financing to grow the business.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( ROE \) — Return on Equity (percentage)
• \( NI \) — Net Income (currency)
• \( E \) — Shareholders' Equity (currency)

Explanation: The formula shows what percentage return the company earned on the equity invested by shareholders.

3. Importance of ROE Calculation

Details: ROE is a key metric for investors comparing the profitability of companies in the same industry. Higher ROE indicates more efficient use of equity capital.

4. Using the Calculator

Tips: Enter the net income and total shareholders' equity amounts. Both values must be > 0. The result shows ROE as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, ROE between 15-20% is considered good, but this varies by industry.

Q2: Can ROE be negative?
A: Yes, if net income is negative (company is losing money) while equity is positive.

Q3: How does ROE differ from ROI?
A: ROE focuses specifically on equity investment returns, while ROI considers all invested capital.

Q4: Where do I find net income and equity values?
A: Both figures are reported on a company's income statement and balance sheet respectively.

Q5: Why multiply by 100 in the formula?
A: This converts the decimal result to a percentage for easier interpretation.