Return on Equity (ROE): Definition and Formula

By John Bromels – Updated Feb 22, 2025 at 10:21 AM

Key Points

Return on Equity (ROE) measures a company's profitability and financial efficiency.
ROE is calculated by dividing annual net earnings by average shareholder equity.
High or improving ROE indicates effective profit generation from assets.

Loading paragraph...

Image of return on equity formula. Return on equity equals net earnings divided by shareholders' equity. — Image Source: The Motley Fool

Loading image...

Loading paragraph...

Loading pitch...

Loading paragraph...

Metric	Q3 2021	Q4 2021	Q1 2022	Q2 2022
Net earnings	$250 million	$600 million	$50 million	$100 million
Shareholders' equity	$8 billion	$9 billion	$12 billion	$11 billion

Loading table...

Loading paragraph...

How to Invest in Stocks

Are you ready to jump into the stock market? We've got you.

Corporate Bonds

If the issuing company remains solvent, these can be a good, stable investment.

How to Invest in Index Funds

Index funds track a particular index and can be a good way to invest.

Loading hub_pages...

Loading pitch...

Loading paragraph...

Loading pitch...

About the Author

John Bromels has been a contributing Motley Fool stock market analyst since 2012 covering information technology, communication services, industrials, energy, materials, utilities, and healthcare sectors. He finds investing to be more interesting and profitable than collectible trading card games and is an award-winning puzzle designer.

TMFTruth2Power

The Motley Fool has a disclosure policy.