Which value is used when calculating the Return on Equity (ROE)?

The Return on Equity (ROE) is a financial metric that measures a company's profitability in relation to shareholders' equity. It indicates how effectively management is using a company’s assets to create profits. The calculation for ROE is performed by taking the net income of the company and dividing it by the total equity of the company.

Focusing on this definition, using net income divided by total equity as the formula reflects the true financial performance from the perspective of equity investors. This ratio helps stakeholders understand how well their equity investment is being utilized to generate earnings. A higher ROE indicates more efficient use of equity, which is generally seen as favorable.

The other choices do not align with the standard calculation of ROE. Instead, they explore different financial relationships that, while important, do not directly represent the return on equity specifically.