This return on equity template helps you calculate the ROE using the formula: ROE = Net Income / Shareholder’s Equity
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Return on Equity (ROE) is a measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity (i.e. 12%). Alternatively, ROE can also be derived by dividing the firm’s dividend growth rate by its earnings retention rate (or, 1 – dividend payout ratio).
Return on Equity is a two-part ratio that brings together the income statement and the balance sheet, as the net income or profit is compared to the shareholders’ equity. The number represents the total return on equity capital and shows the firm’s ability to turn assets into profits. To put it another way, it measures the profits made for each dollar from shareholders’ equity.
A sustainable and increasing ROE over time can mean a company is good at generating shareholder returns because it knows how to reinvest its earnings in productive and high-quality assets. In contrast, a declining ROE means that management is making poor decisions on investing capital in unproductive assets.
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