Return on Equity (ROE)

WA Business News  Apr 4  Comment 
Aspen Group has made more progress in selling off its commercial portfolio, offloading its highest value asset, the Septimus Roe office tower on Adelaide Terrace. The developer and fund manager said it had signed an unconditional contract to...
Benzinga  Apr 1  Comment 
In a report published Tuesday, Bank of America analyst Seth Weiss reiterated a Neutral rating on ING US (NYSE: VOYA), and raised the price target from $38.00 to $41.00. In the report, Bank of America noted, “VOYA offers a substantial ROE...
Benzinga  Mar 5  Comment 
Below are the top small-cap semiconductor-broad line stocks on the NYSE and the NASDAQ in terms of return on equity. The trailing-twelve-month return on equity at Integrated Device Technology (NASDAQ: IDTI) is 11.99%. Integrated Device's...
The Economic Times  Feb 25  Comment 
Zero ROE has been given to Tata Power and Adani Power though the unit price increase has been given under the formula which they had prescribe.
Forbes  Jan 23  Comment 
My good friend and colleague Scott Rasmussen came out with an interesting finding just this past week. His new poll found that 74% of likely voters believe that abortion is "morally wrong." I don't dispute that finding one bit, but I sure have a...
Benzinga  Dec 12  Comment 
Below are the top beverages-brewers stocks on the NYSE in terms of return on equity. The trailing-twelve-month return on equity at Boston Beer Co (NYSE: SAM) is 27.03%. Boston Beer's revenue for the same period is $686.68 million. The...
The Globe and Mail  Dec 11  Comment 
We look for companies with an average return on equity greater than 15 per cent for each of the past four, eight and 12 quarters
SeekingAlpha  Dec 1  Comment 
By David Zanoni: Return on equity shows how much profit a company generates from shareholders' money. The return on equity standout among the automakers is Ford (F). The other automakers are not as effective in converting shareholder money into...
Benzinga  Oct 23  Comment 
Below are the top small-cap REIT-retail stocks on the NYSE and the NASDAQ in terms of return on equity. The trailing-twelve-month return on equity at Alexander's (NYSE: ALX) is 14.85%. Alexander's operating margin for the same period is...


Return on Equity equals net income divided by average equity over a given period

Return on Equity is a measure of how profitably a company employs its equity, that is, the money raised from shareholders. Everything else being equal, a higher ROE is better as it means that the company is efficient about using its equity.

ROE = Net Income ÷ (Average Equity during the period)

Due to the unique nature of each industry and variances in accounting methodologies among them, ROE should normally be used for comparisons within the same industry. For example: The ROE for service-oriented industries, such as the software industry, is significantly higher than that of capital-intensive industries such as the construction industry.

Comparisons of ROE within the same industry can also be misleading as ROE ignores the effect of debt. If a company can issue debt at a lower interest rate than the rate of return on its investments, it could increase its ROE. However, higher debt also increases the risk of failure for the company. Generally, companies with higher debt, as measured by the debt to equity ratio, will have better ROE. An investor could get a better sense of the investment by considering the Return on Assets, which mitigates the influence of debt, alongwith ROE.

Determination of ROE

What are the drivers of ROE? The DuPont Analysis breaks the Return on Equity into three parts that are drivers: net profit margin, asset turnover and leverage.

ROE = (Net profits/Sales) * (Sales/Assets) * (Assets/Equity) = Net profits / Equity

ROE can also be broken down in a two-part equation, similar to the DuPont Analysis, using ROA (Net profits / Assets) and leverage.

ROE = (Net profits / Assets) * (Assets / Equity) = Net profits / Equity


  • Company A earned $5 million in net income. Its equity capital in the beginning of the year were $10 million, and at the end of the year were $20 million. Therefore, the company's ROE during the year was 33% [($5 million)/(($10m + $20m)/2)].
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