Capterra Glossary
Return on Equity (ROE)
A return on equity (ROE) is a measure of business profitability in relation to shareholders’ equity. For every dollar of a shareholder’s equity, ROE measures how many dollars of profit are generated. ROE is calculated by dividing net income by the value of the stockholders’ equity for the same period, which is expressed as a percentage. A high return on equity indicates that a company makes efficient use of shareholder investments.
What Small and Midsize Businesses Need to Know About Return on Equity (ROE)
Small to midsize businesses should pay close attention to their return on equity because it measures the ability to turn shareholder investments into profits. Potential shareholders who take an interest in a company will look at the SMB’s ROE when assessing if a business is worth investing in. A low return on equity suggests that the business does not use equity to generate returns efficiently.
Related Terms
- Compound Annual Growth Rate (CAGR)
- Financial Planning and Analysis (FP&A)
- Selling General and Administrative (SG&A) Expenses
- Hedge Fund
- Gateway
- Record to Report (R2R)
- ROIT (Return on Information Technology)
- Chief Revenue Officer (CRO)
- SAC (Subscriber Acquisition Cost)
- ROE (Return on Equity)
- Tokenization
- Net Present Value
- Fintech
- Financial Management System (FMS)
- Business Capability Modeling