Return On Average Equity - ROAE

AAA

DEFINITION of 'Return On Average Equity - ROAE'

An adjusted version of the return on equity (ROE) measure of company profitability, in which the denominator, shareholders' equity, is changed to average shareholders' equity. Typically, return on average equity refers to a company's performance over a fiscal year, so the average-equity denominator is usually computed as the sum of the equity value at the beginning and end of the year, divided by two.

INVESTOPEDIA EXPLAINS 'Return On Average Equity - ROAE'

A measure of return on average equity can give a more accurate depiction of a company's corporate profitability, especially in instances where the value of the shareholders' equity has changed considerably during a fiscal year. In situations where the shareholders' equity does not change or changes by very little during a fiscal year, the ROE and ROAE numbers should be identical, or at least similar.

RELATED TERMS
  1. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders ...
  2. Return On Capital Employed (ROCE)

    A financial ratio that measures a company's profitability and ...
  3. Energy Return On Investment - EROI

    The amount of energy that has to be expended in order to produce ...
  4. Return On Assets - ROA

    An indicator of how profitable a company is relative to its total ...
  5. Return On Gross Invested Capital ...

    The amount that a company earns on the total investment it has ...
  6. Shareholders' Equity

    A firm's total assets minus its total liabilities. Equivalently, ...
RELATED FAQS
  1. If a company has a high debt to capital ratio, what else should I look at before ...

    A variety of equity valuation metrics can be utilized to evaluate a company along with the debt to capital ratio to get a ... Read Full Answer >>
  2. How does DuPont Analysis measure profitability?

    DuPont analysis determines profitability by measuring assets at their gross book value, which produces a greater return on ... Read Full Answer >>
  3. Which financial statements are most important when performing ratio analysis?

    Financial ratio analysis is an important aspect of fundamental analysis for any party engaged in value investing. Financial ... Read Full Answer >>
  4. What are some of the advantages and disadvantages of DuPont Analysis?

    DuPont analysis is a potentially helpful tool for analysis that investors can use to make more informed choices regarding ... Read Full Answer >>
  5. Why would a value investor consider the Internet sector?

    Value investors may find significant opportunity in the Internet and tech sectors. The greatest value investor of them all, ... Read Full Answer >>
  6. Why would a company choose to pay a stock dividend instead of a cash dividend?

    For stock investors seeking instant gratification as a reward for having placed their funds in profitable companies, it would ... Read Full Answer >>
Related Articles
  1. Markets

    ROA And ROE Give Clear Picture Of Corporate Health

    Both measure performance, but sometimes they tell a very different story. This is why they’re best used together.
  2. Economics

    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.
  3. Investing

    Spotting Cash Cows

    We show you why some of these companies stand apart from the herd.
  4. Investing

    The Capital Asset Pricing (CAPM) Model: Pros and Cons

    CAPM, while criticized for its unrealistic assumptions, provides a more useful outcome than either the DDM or WACC in many situations.
  5. Fundamental Analysis

    How Do Tech Companies Measure ROA And ROE?

    The return on Assets (ROA) and return on equity (ROE) are often used metrics to measure the returns generated by a company.
  6. Fundamental Analysis

    Decoding DuPont Analysis

    Get a deeper understanding of ROE with these three-step and five-step calculations.
  7. Investing Basics

    The Optimal Use Of Financial Leverage In A Corporate Capital Structure

    The amount of debt and equity that makes up a company's capital structure has many risk and return implications.
  8. Investing Basics

    Looking Deeper Into Capital Allocation

    Discover how companies decide how to spend their cash in a variety of market conditions.
  9. Fundamental Analysis

    5 Stock Market Metrics Explained

    Learn how to evaluate a company's performance using metrics such as ROE, EPS and P/E ratio.
  10. Options & Futures

    Find Investment Quality In The Income Statement

    Use these key attributes to uncover top-level investments.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center