Return on equity

How it is used

Usually shortened to ROE and said letter by letter. A key ratio for banks and a common way to compare management performance. Analysts look at whether ROE comes from real profitability or from high debt, and compare ROE with the cost of equity.

Example sentences

1. The bank's return on equity reached 30 percent, but much of that reflects high inflation.

2. Companies with a stable return on equity above 15 percent often trade at higher multiples.

Common collocations

• high return on equity
• ROE of
• improve return on equity
• return on equity target

Related terms

• equityOwnership in a company in the form of shares. In accounting, it also means the value left for shareholders after all debts are subtracted from the assets.
• price-to-book ratioA company's share price divided by its book value per share, or its market capitalization divided by its book value. It compares market value with accounting value.
• earnings per shareA company's net profit for a period divided by the number of its shares. It shows how much profit belongs to each single share.
• book valueThe value of a company according to its balance sheet: total assets minus total liabilities. It is the shareholders' equity shown in the accounts.
• P/E ratioShort for price-to-earnings ratio: a company's share price divided by its earnings per share. It shows how much investors pay for each unit of yearly profit.

This word in other fields

The same English word can have a different meaning in another field:

• return on equity · Finance & Banking

More terms: Valuation & Ratios

• market capitalization
• overvalued
• undervalued