FULL FORM OF ROE

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UNDERSTANDING ROE     

    ROE stand for Return on Equity. It is considered a measure of how effectively management is using a company's asset to earn profit. ROE is expressed as a percentage and can be calculated for any company if net income and equity are both positive numbers. Net income is calculated before dividends paid to common shareholders and after dividends to preferred shareholders and interest to lenders. It is calculated by the following formula  -----
      Return on Equity=         Net Income
                                                ________________________
                                                Average Shareholders Equity   

        A higher ROE suggests that company's management is more efficient in term of utilising investment financial to grow their business and likely to provide better returns to its investors. A low ROE,however indicates that a company management is not so efficient and they have to work hard to make the company profitable.  

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