A financial ratio that measures how effectively a company generates profits from shareholders' equity, calculated as net income divided by shareholders' equity. It indicates management's efficiency in using investor capital to create value.
Combines 'return' from Old French 'retorner' (to turn back) and 'equity' from Latin 'aequitas' (fairness, equality). This metric gained prominence in the 1960s as portfolio theory emphasized measuring returns relative to invested capital.
ROE is like measuring how much fruit you get per dollar invested in an orchard - a 15% ROE means every dollar of shareholder money generates 15 cents of annual profit. Warren Buffett calls it 'the ultimate test of management effectiveness' because it shows how well executives multiply shareholder wealth!
Complete word intelligence in one call. Free tier — 50 lookups/day.