What is the formula for calculating Return on Equity (ROE)?

Return on Equity (ROE) is a key financial metric that measures the amount of net income generated as a percentage of shareholders' equity. It reflects how effectively a company is utilizing the equity invested by its shareholders to generate profits. The formula to calculate ROE is indeed net income divided by total equity.

By taking net income, which represents the profit available to shareholders after all expenses have been deducted, and dividing it by total equity, which is the capital that owners have invested in the company, the ROE provides insights into the efficiency with which a company generates returns from its equity base. A higher ROE indicates a more efficient use of equity capital, making it a crucial ratio for investors assessing the profitability and financial health of a business.