Return on equity indicates the amount of profit earned by a public company in relation to the equity held by its shareholders.
This indicator provides the company and its shareholders with an overview of the company’s effectiveness in turning investment into profit.
Return on equity is found by dividing a company’s net income by the total equity held by its shareholders.
A company’s net income over a one-year period totals 6 million Swiss francs. The total amount of equity held by its shareholders is worth 20 million Swiss francs. So the return on equity of that company is 30%.