Return on Equity

Return on equity (ROE), also known as "return on net worth" (RONW), is a measure of the profitability of a business in relation to the book value of shareholder equity, also known as net assets or assets minus liabilities.

ROE is a measure of how well a company uses investments to generate earnings growth or in other words it measures a bank’s profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is the amount of net income returned as a percentage of shareholders equity.

ROE is especially used for comparing the performance of companies in the same industry. As with return on assets, a ROE is a measure of management's ability to generate income from the equity available to it. ROEs of 15-20% are generally considered good.