Glossary
Return on equity measures how much net income a company generates for each dollar of shareholders' equity.
Return on equity (ROE) is net income divided by shareholders' equity. An ROE of 20% means the company earned 20 cents of profit for every dollar of equity capital. It is a core measure of how efficiently a business turns owners' capital into profit.
A high ROE can reflect a genuinely productive business, but it can also be inflated by heavy leverage, since borrowing shrinks the equity base. Reading ROE alongside leverage and the Piotroski components gives a fuller picture than the headline number alone.
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