YOU ASK:
What is the definition of Return on Equity?
WE ANSWER:
Return on Equity refers to the income that the company generated divided by shareholders' equity. The income stated here is on a net basis.
Return on Equity is a measurement tool that indicates how well the capital invested is being utilized by the company. This is a way to make comparisons between two or more companies with regards to its profitability.
There are also other ways return on equity is computed. Return in common equity is computed by getting the net income and subtracting common equity, then dividing by preferred dividends.
Computing for return on equity helps investors evaluate a company's performance and look at trends.
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