Glossary term
Return on Equity
How much profit a company earns relative to shareholder equity.
Return on equity (ROE) measures how efficiently a company turns shareholder capital into profit. High ROE can be a sign of a strong business, but it can also be inflated by heavy debt, so it should be read alongside leverage and balance-sheet strength.
Example: If a company earns $20 million on $100 million of equity, its ROE is 20%.