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Measures how efficient equity from stockholders have generated company earnings.[sc:kit02 ]
Return on Equity Formula
Explanation of Return on Equity
Often shortened to simply “ROE”, the Return on Equity measures the Net Earnings in relation to the Total Stockholders Equity. Return on Equity describes how well contributions from stockholders generated earnings for the company.
Importance of Return on Equity
A company wants to maximize its use of stockholder’s equity, as it is the stockholders the company must answer to on how they spent the stockholder’s money. Return on Equity basically shows how any dollars of earnings were generated per dollar of equity the stockholder’s provided.