1. What is Return on Common Stockholder Equity?

Return on Equity (ROE) is a financial ratio that measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. It indicates how effectively management is using a company's assets to create profits.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• Net Income — Company's total earnings after all expenses and taxes
• Average Shareholders' Equity — Average of beginning and ending shareholders' equity for the period

Explanation: The ratio shows what percentage return the company achieved on the equity invested by shareholders.

3. Importance of ROE Calculation

Details: ROE is a key indicator of financial performance and management efficiency. It helps investors compare the profitability of companies in the same industry and assess investment opportunities.

4. Using the Calculator

Tips: Enter net income and average shareholders' equity in the same currency units. Both values must be positive numbers to calculate a valid ROE percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE percentage?
A: Generally, ROE above 15% is considered good, but this varies by industry. Compare with industry averages for better context.

Q2: How is average shareholders' equity calculated?
A: Average shareholders' equity = (Beginning equity + Ending equity) / 2 for the period being measured.

Q3: Can ROE be too high?
A: Extremely high ROE may indicate excessive leverage (debt) rather than operational efficiency, which could be risky.

Q4: What are the limitations of ROE?
A: ROE doesn't account for debt levels and can be manipulated through share buybacks or accounting methods.

Q5: How often should ROE be calculated?
A: ROE should be calculated quarterly and annually to track performance trends over time.