What does ROE stand for in financial terms?

Return on Equity (ROE) is a crucial financial metric that measures a company's profitability in relation to the shareholders' equity. It indicates how effectively management is using a company’s assets to create profits. The formula for ROE is net income divided by shareholders' equity, expressed as a percentage. A higher ROE signifies that a company is more efficient at generating profits from each unit of equity, which is often attractive to investors. This metric is particularly useful for comparing the financial performance of companies within the same industry, as it provides insights into how well each company is utilizing its equity base.