What Is Return on Equity?
Return on equity is the net income a company produces divided by the shareholders’ equity. This is one of the key measures of profitability for a company and is a good way to compare different companies when it comes to questions of profitability. In addition to the primary formula, there are several others that may also be used from time to time to find the return on equity. Another common return on equity measurement is to take the net income and subtract that by the common equity, after divided by the preferred dividends. This is often referred to as the return on common equity. This formula can provide a slightly different picture than the more simplified formula and may be preferred by some investors. In most cases, common dividends are still included in the return on equity. There is also another formula that is sometimes used to determine the return on equity. The DuPont formula takes into account three major areas. Sales are divided by net income, which is multiplied by total d
ROE is an accounting valuation method similar to Return on Investment (ROI). Return on Equity (ROE) is one measure of how efficiently a company uses its assets to produce earnings. Because the numerator (Net Income) is an unreliable corporate performance measurement, the outcome of the formula for ROE must also be unreliable to determine success or corporate value. However the formula still shows up in many annual reports.
