Return on Equity

Definition

• A method used to determine the profitability of a company by comparing its net income to the equity owned by shareholders. Return on equity shows how efficiently a corporation uses the capital invested by shareholders. The net income used in the calculation should be from the full fiscal year before dividends are paid to common stock but after dividends have been paid to preferred stock. Preferred shares are not included in shareholder equity. Also known as "return on net worth."

Synonyms
return on net worth

Acronyms
ROE

Alternate Spellings
return

Related Terms and Acronyms

• Capital — Definition,
  • Money that is used to make money; for example, to buy rental property or a business.
• Capital Gain (CG) — Acronym, Important,
  • The profit made by the seller when real estate or other capital assets are sold. Capital gains are taxed more favourably than earned income. However, this can be dependent on your tax bracket and the length of time you owned the asset before it was sold. You could pay approximately one-third to one-half less tax than you would pay on the same amount of earned salary.
• Common Stock (CS) — Acronym,
  • A security that allocates partial ownership in a corporation, but at a lower standing than preferred stocks.
• Dividend — Definition,
  • Distribution of earnings to shareholders. In credit unions, it's the money paid to members for deposits, similar to the interest banks pay to their customers for deposits.
• Equity — Definition,
  • Ownership in an asset.
  • The value of a property minus outstanding mortgage debt and other liens.
• Internal Rate of Return (IRR) — Acronym, Important,
  • That rate at which the present worth of all present and future investment costs equals the present worth of all present and future investment benefits.
• Internal Rate of Return on Equity (IRROE) — Acronym,
• Investment Banking (IBK) — Acronym,
  • Bank operations that manage a bank's funding position, as well as its holdings of Treasury bills, bonds and preferred and common stock.
• Preferred Stock — Definition,
  • A type of security that signifies part ownership in a corporation and is given preferential treatment over common stocks.
• Private Equity — Definition,
  • Equity not traded on a stock exchange.
• Ratio — Definition,
  • Comparison of two figures used to evaluate business performance, such as debt/equity ratio and return on investment.
• Return on Assets (ROA) — Acronym,
  • A ratio that shows how profitable a company is when compared to its assets.
• Return on Investment (ROI) — Acronym, Very Important,
  • The profit an investment generates, expressed as equity divided by cash flow.
• Stock — Definition,
  • A share of the ownership of a company.