return on equity

return on equity
Fin
the ratio of a company’s net income as a percentage of shareholders’ funds.
Abbr. ROE
EXAMPLE
Return on equity is easy to calculate and is applicable to a majority of industries. It is probably the most widely used measure of how well a company is performing for its shareholders.
     It is calculated by dividing the net income shown on the income statement (usually of the past year) by shareholders’ equity, which appears on the balance sheet:
Net income/ owners’ equity × 100% = return on equity
For example, if net income is $450 and equity is $2,500, then:
450/ 2,500 = 0.18 × 100% = 18% return on equity
     Return on equity for most companies should be in double figures; investors often look for 15% or higher, while a return of 20% or more is considered excellent. Seasoned investors also review five-year average ROE, to gauge consistency.

The ultimate business dictionary. 2015.

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Look at other dictionaries:

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