Also known as return on shareholders' equity, this ratio measures the rate of return that shareholders receive on their investment in your business. In other words, it tells the shareholders how much the company is earning for each of their invested dollars. The return on equity (ROE) is also a good indicator of how effective you and your management team are at using equity to fund your operations and grow your company.
It goes without saying that the overwhelming majority of your existing and potential investors will want to see a high ROE ratio, which indicates that your company is using its investors' funds efficiently.
How to calculate the return on shareholders' equity:
(Net income for the year - Taxes - Interest)
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