Return on Equity (ROE)
Return on Equity (ROE) is a financial metric used to measure the profitability of a company in relation to its shareholders’ equity. It is calculated by dividing a company’s net income by its total shareholders’ equity. ROE is an important indicator of a company’s financial health and is used to compare the profitability of different companies. A higher ROE indicates that a company is more profitable and is able to generate more income from its shareholders’ equity.
History of Return on Equity
Return on Equity has been used as a measure of profitability since the early 20th century. It was first used by Benjamin Graham, an American economist and investor, in his book “The Intelligent Investor”. Graham argued that a company’s return on equity should be higher than its cost of capital in order to be considered a good investment. Since then, ROE has become a widely used metric for evaluating a company’s financial performance.
Comparison of Return on Equity
| Company | ROE (%) |
|---|---|
| Apple | 37.2 |
| Microsoft | 30.2 |
| 20.3 |
Summary
Return on Equity (ROE) is a financial metric used to measure the profitability of a company in relation to its shareholders’ equity. It is calculated by dividing a company’s net income by its total shareholders’ equity. ROE is an important indicator of a company’s financial health and is used to compare the profitability of different companies. For more information on ROE, you can visit websites such as Investopedia, The Balance, and Yahoo Finance.
See Also
- Return on Assets (ROA)
- Return on Investment (ROI)
- Earnings per Share (EPS)
- Price to Earnings Ratio (P/E Ratio)
- Debt to Equity Ratio (D/E Ratio)
- Gross Profit Margin
- Operating Profit Margin
- Net Profit Margin
- Cash Flow Return on Investment (CFROI)
- Economic Value Added (EVA)
