ROE (return on equity) is a profitability indicator that measures a company's ability to generate profit from its shareholders' investments. Return on equity, also referred to as "return on net worth," is expressed as a percentage and calculated using the following formula:
ROE = Net Income / Shareholder's Equity * 100.
For example, if a company's net income was $1,000,000 in the most recent fiscal year, and the shareholder's equity was $2,000,000, return on equity would be 50%.
50% ROE = $1,000,000 / $2,000,000 * 100.
In other words, for every dollar of shareholder's equity, the company earned a $0.50 profit.
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