Accounting
Intermediate

Return on Equity (ROE)

The profit generated for each dollar of shareholders’ equity.

Formula

ROE=Net IncomeShareholder EquityROE = \dfrac{Net\ Income}{Shareholder\ Equity}

Variables

ROEReturn on equity
Net IncomeBottom-line profit
Shareholder EquityOwners’ capital

Example

$70k / $200k = 35% ROE

Did You Know?

Warren Buffett famously prizes a durable, high ROE as a hallmark of a great business.

profitabilityshareholdersequity