Glossary term
Return on equity
Return on equity compares net income with shareholders' equity or average equity, depending on the model.
Plain meaning
What return on equity means
Return on equity, often shortened to ROE, is a profitability ratio. A simple version divides net income by shareholders' equity.
Formula role
How OpenBook uses it
OpenBook's profitability calculator uses entered net income and equity. The DuPont calculator decomposes ROE into profit margin, asset turnover, and equity multiplier using the entered statement amounts.
Common boundary
Why ROE needs context
ROE can be affected by leverage, accounting classification, one-time items, and whether beginning, ending, or average equity is used. OpenBook calculators state the input base used by the model.