return on equity

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Return on equity (ROE)

Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets (ROA) multiplied by financial leverage (total assets/total equity).

Return on Equity

A publicly-traded company's earnings divided by the amount of money invested in stock, expressed as a percentage. This is a measure of how well the company is investing the money invested in it. A high return on equity indicates that the company is spending wisely and is likely profitable; a low return on equity indicates the opposite. As a result, high returns on equity lead to higher stock prices. Some analysts believe that return on equity is the single most important indicator of publicly-traded companies' health. See also: Growth stock.

return on equity (ROE)

A measure of the net income that a firm is able to earn as a percent of stockholders' investment. Many analysts consider ROE the single most important financial ratio applying to stockholders and the best measure of performance by a firm's management. Return on equity is calculated by dividing net income after taxes by owners' equity. Compare profitability ratio. See also return on common stock equity.

Return on equity.

Return on equity (ROE) measures how much a company earns within a specific period in relation to the amount that's invested in its common stock.

It is calculated by dividing the company's net income before common stock dividends are paid by the company's net worth, which is the stockholders' equity.

If the ROE is higher than the company's return on assets, it may be a sign that management is using leverage to increase profits and profit margins.

In general, it's considered a sign of good management when a company's performance over time is at least as good as the average return on equity for other companies in the same industry.

return on equity


return on equity

See equity dividend.
References in periodicals archive ?
3) To highlight industry differences for the DuPont ratio changes, this article reports the average:
Overall, the DuPont ratio levels did not improve universally over the decade.
2000 and 2010 DuPont Ratio Industry Averages and CAGR for the 10-year Growth in those Averages ROS (%) ATO (multiple) INDUSTRY 2000 2010 CAGR % * 2000 2010 CAGR % * Household Personal 10.
The question of interest arising from these factors is, "How have the values for the five DuPont ratios changed?
Third, the changes in the DuPont ratios offer an opportunity for comparison with four other fundamental financial performance metrics (sales, net income, earnings per share, and sales per employee) during that same period.
Thus the most improved relative contribution to ROE over the 10 years was dispersed fairly evenly across the three DuPont ratios for these industry clusters.
8) Do the DuPont ratios correlate more strongly with owner returns than the basic sales, NI, EPS, and S/E metrics?
Fourth, it appears that, of the five DuPont ratios, ROS and ROA exhibit strong correlations in more industry clusters (seven of the 22) than the other DuPont ratios do, and FinLev is the next most highly correlated DuPont measure.
These models regress current-year ROCSE on combinations of prior-year ROCSE, prior-year DuPont ratios based on proportionate consolidation, and/or prior-year DuPont ratios based on the equity method.
Table 4 presents the results of regressions of ROCSE on the combinations of prior-year ROCSE and prior-year DuPont ratios presented below:
2] from regressions of current-year ROCSE (return on common shareholders' equity) on combinations of prior-year ROCSE, prior-year DuPont ratios based on proportionate consolidation (PC), and/or prior-year DuPont ratios based on the equity method (EQ).
The DuPont ratios in Table 5 show how the company accommodated this extra growth: it used more borrowed money, which increased its leverage ratio, and used its assets more efficiently, which increased its total asset turnover ratio.