Return on Equity (ROE)
Profitability relative to shareholder investment.
Formula
ROE = (Net Profit ÷ Shareholders' Equity) × 100
Real World
Coca-Cola consistently posts ROE above 40%, making it highly attractive to shareholders — driven partly by share buybacks that reduce equity and mathematically boost the ratio.
Exam Focus
Evaluate ROE critically — a high figure caused by low equity (e.g. heavy debt financing) signals risk, not just strong returns.
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