return on equity ratio
Financial Dictionary — Financial Analysis
Definition
A ratio comparing income (net income minus preferred dividends) to the average total equity
Detailed Explanation
Return on equity ratio is ROE, comparing net profit attributable to owners to average shareholders’ equity.
Common Uses
- Used to interpret financial statements and evaluate performance, liquidity, solvency, and efficiency.
- Used when comparing periods, peers, and forecasting outcomes.
- Used when comparing periods, peers, and forecasting outcomes.
Practical Example
- Example: Analysts apply **return on equity ratio** to assess trends and compare the company with industry benchmarks.
Why This Term Matters
- Why it matters: Turns raw numbers into insights, supports decision-making, and highlights risks and opportunities early.