RETURN ON EQUITY Definition

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RETURN ON EQUITY (ROE) measures the overall efficiency of the firm in managing its total investments in assets and in generating a return to stockholders. It is the primary measure of how well management is running the company. ROE allows you to quickly gauge whether a company is a value creator or a cash consumer. By relating the earnings generated to the shareholders equity, you can see how much cash is created from the existing assets. Clearly, all things being equal, the higher a companys ROE, the better the company. Formula: Net Income / Stockholders Equity

Learn new Accounting Terms

CAPITAL EMPLOYED is the value of the assets that contribute to a companys ability to generate revenue, i.e., fixed assets plus current assets minus current liabilities.

BALANCE SHEET GEARING is the ratio of interest-bearing debt to equity.

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