What is 'Return On Equity  ROE'
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.
Also known as "return on net worth" (RONW).
BREAKING DOWN 'Return On Equity  ROE'
The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
There are several variations on the formula that investors may use:
1. Investors wishing to see the return on common equity may modify the formula above by subtracting preferred dividends from net income and subtracting preferred equity from shareholders' equity, giving the following: return on common equity (ROCE) = net income  preferred dividends / common equity.
2. Return on equity may also be calculated by dividing net income by average shareholders' equity. Average shareholders' equity is calculated by adding the shareholders' equity at the beginning of a period to the shareholders' equity at period's end and dividing the result by two.
3. Investors may also calculate the change in ROE for a period by first using the shareholders' equity figure from the beginning of a period as a denominator to determine the beginning ROE. Then, the endofperiod shareholders' equity can be used as the denominator to determine the ending ROE. Calculating both beginning and ending ROEs allows an investor to determine the change in profitability over the period.
Things to Remember 

For more on return on equity (ROE) read Are companies with a negative return on equity (ROE) always a bad investment? and ROA And ROE Give Clear Picture Of Corporate Health

Return
The gain or loss of a security in a particular period. The return ... 
DuPont Analysis
A method of performance measurement that was started by the DuPont ... 
DuPont Identity
An expression that breaks return on equity (ROE) down into three ... 
Equity Multiplier
The ratio of a companyâ€™s total assets to its stockholderâ€™s equity. ... 
Average Return
The simple mathematical average of a series of returns generated ... 
Shareholder Equity Ratio
A ratio used to help determine how much shareholders would receive ...

Investing
How Return On Equity Can Help You Find Profitable Stocks
It pays to invest in companies that generate profits more efficiently than their rivals. This is where ROE comes in. 
Investing
ROA And ROE Give Clear Picture Of Corporate Health
Both measure performance, but sometimes they tell a very different story. This is why theyâ€™re best used together. 
Investing
Analyzing UPS's Return on Equity (ROE) (UPS)
Learn about UPS's return on equity (ROE), an important metric for investors. It is useful to compare the historical ROE and in relation to peers. 
Investing
What Are The Main Differences Between Return On Equity (ROE) and Return On Assets?
Return on equity and return on assets are important measures for evaluating how well a company manages the capital its shareholders entrust to it. 
Investing
Analyzing BP's Return on Equity (ROE)
Examine the return on equity (ROE) for British Petroleum, the slumping international energy company that seems to be falling behind its competitors. 
Investing
Analyzing Microsoft's Return on Equity (ROE) (MSFT)
Discover a detailed analysis of Microsoft's historical return on equity, and learn how its ROE stacks up to its competitors in the tech industry. 
Investing
Decoding DuPont Analysis
Get a deeper understanding of ROE with these threestep and fivestep calculations. 
Investing
Analyzing JetBlue's Return on Equity (JBLU)
Learn about JetBlue's historical ROE and how it stacks up to similarsized peers. ROE is a useful metric for investors to understand. 
Managing Wealth
Looking Deeper Into Capital Allocation
Discover how companies decide how to spend their cash in a variety of market conditions. 
Investing
Analyzing Google's Return on Equity (ROE) (GOOGL)
Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?

What level of return on equity is common for a company in the banking sector?
Discover what the average return on equity (ROE) ratio is for companies in the banking industry, and understand the significance ... Read Answer >> 
How do you calculate return on equity (ROE)?
Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Answer >> 
What is the difference between a company's equity and its shareholders' equity?
Understand the difference and the interrelationship between shareholders' equity in a company and the company's actual total ... Read Answer >> 
What is the average return on equity for a company in the financial services sector?
Learn the importance of calculating a company's return on equity and what businesses in the financial services industry average ... Read Answer >> 
What is the difference between ROCE and ROE?
Discover how investors and analysts utilize the return on equity and return on capital employed ratios to gauge financial ... Read Answer >> 
Are companies with a negative return on equity (ROE) always a bad investment?
Any metric that uses net income is basically nullified as an input when a company reports negative profits. Return on equity ... Read Answer >>