1. What is Return on Common Equity (ROE)?

Definition: 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 (%)
• \( NI \) — Net income (USD)
• \( E \) — Shareholders' equity (USD)

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 shareholders' equity amounts in USD. Both values must be > 0. The result shows the percentage return on equity.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROE percentage?
A: While it varies by industry, generally an ROE of 15-20% is considered good, and above 20% is excellent.

Q2: Should ROE be calculated monthly or annually?
A: While annual ROE is most common, monthly ROE can help track performance trends during the year.

Q3: How does ROE differ from ROI?
A: ROE specifically measures return on shareholders' equity, while ROI measures return on any type of investment.

Q4: Can ROE be too high?
A: Exceptionally high ROE might indicate excessive debt or inconsistent profits. It's best compared to industry averages.

Q5: Where do I find net income and equity amounts?
A: These figures come from a company's income statement (net income) and balance sheet (shareholders' equity).