Fundamentals & corporate actions
How do I calculate and evaluate Return on Equity (ROE)?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Return on Equity (ROE) measures how efficiently a company generates profit from shareholders' equity, calculated by dividing net income by average shareholder equity, expressed as a percentage.
How it works
ROE helps compare profitability across companies of different sizes. A rising ROE can reflect genuine efficiency gains, but can also be inflated by high debt levels that reduce the equity base.
An example
A company with $10 million net income and $50 million average equity has a 20% ROE, suggesting efficient use of shareholder capital relative to peers.
Risk & limitations
High ROE driven mainly by heavy leverage rather than operational efficiency can mask underlying financial risk, so review debt levels alongside ROE.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.