The return on equity (ROE) ratio, calculated by dividing net income by shareholders' equity and multiplying by 100 to get a percentage, measures a company's ability to generate profit from shareholders' investments.
- A higher ROE indicates efficient use of equity capital to generate earnings.
- It is a key performance metric for investors, providing insights into the company's profitability and management effectiveness.
- ROE helps investors compare the profitability of different companies and make informed investment decisions.