Return on equity

Return on equity or RoE is the income earned by a company on its equity capital.

RoE is measured by dividing the net income of the company with the equity share capital or the average shareholders’ equity.

Below is the formula for calculating RoE:-

Source: Tavaga Research

The average shareholders’ equity is the simple average of opening equity share capital and closing equity share capital.

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RoE is a financial ratio that can be used to compare a company with its peers in order to determine which of them is the better investment option.