ROE / Return on Equity

ROE is one of the most widely used profitability indicators, which is based on the profit after tax on equity. The higher this indicator is, the better, it should be above 5 percent, but reaching the 20-30 percent level is only possible for very few lucky people.

ROE = EARNINGS BEFORE TAXES / EQUITY

Return on equity (ROE) is the indicator that reveals that a for own capital projected size taxed profit achieved by the business in a given period. 

Since equity can change, in practice for the given period, it is usually one for the business year their value is taken into account. This is done by taking the arithmetic mean of equity measured at the beginning and end of the period, and comparing the after-tax result to it. 

The exact way to calculate ROE is to divide net income by equity. (Its co-index, a ROA case, the same method, only there we divide the net result by the total assets instead of equity.) The index so it will be a percentage value. Of course, if the net result is negative, because unprofitable the company, then the ROE also goes negative. We can be happy with a positive ROE, but obviously it doesn't matter at all what the ratio will be. 

The higher the value, the better the company performs, but the achievable level varies by sector, market and era. The results of an American casino should not be compared with a carpenter's shop in a small country. 

Generally, ROE is somewhere between 5 and 40 percent. The company is efficient at less than 5 percent, but if possible, it is worth improving a few things. Above 5 percent, we are talking about a fair balance, and in the case of 10 percent, the business is performing reassuringly well. Above this level, we are talking about very good results. ROE of 20-30 percent is considered completely unattainable in most sectors, and to perform at this level permanently is the result of exceptionally good work or great luck.