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Definition – What is Return on Equity?
Return on Equity is a ratio of net income to shareholder equity. It is listed as a percentage.
Formula – How to calculate Return on Equity
Return on Equity = (Net Income / Shareholder’s Equity) x 100%
Example
A company has net income of $2,100 and shareholder equity of $4,000.
Return on Equity = ($2,100 / $4,000) = 0.525 x 100% = 52.5%
Therefore, this company has a return on equity of 52.5%.
Sources and more resources
- Wikipedia – Return on equity – Wikipedia’s entry on ROE and how it is calculated.
- The Balance – Return on Equity (ROE) and Income Statement Analysis – An explanation of return on equity.
- Investopedia – Return on Equity (ROE) – A summary of how ROE is determined.