What is Return on equity (ROE)?
An indicator showing how much net profit every 100 soum of equity, contributed by the owners and retained in the company, earned in one year. Formula: net profit ÷ equity × 100%. If equity changed considerably during the year, the average of the values at the beginning and end of the year is taken as the denominator. The difference from return on assets: it takes into account only the owners' money. Therefore, if a company works with more borrowed money, equity stays small and ROE may come out high; along with a good result this also signals a high debt risk. For this reason ROE should be read together with financial leverage.