4.11 : 股本回报率

Return on equity measures a company's profitability relative to shareholders' equity, reflecting how effectively management uses equity capital to generate profits.

It is calculated by dividing the business's net income by the shareholder's equity.

Net income refers to the income that a company generates for a given period after deducting total expenses.

Shareholders' equity represents the total amount of capital in a company that is directly linked to its owners.

Consider Stripefeet, a shoe manufacturing corporation with a net income of ten million dollars and shareholders' equity of fifty million.

The Return on equity is twenty percent. This means that Stripefeet generates twenty cents of profit for every dollar of equity, indicating Stripfeet's efficient use of equity capital.

Another shoe manufacturer, Cross, has a return of equity of fifteen percent. Comparing the two businesses, Stripefeet is considered more efficient in generating profits from its equity.

Return on equity should be analyzed alongside other financial indicators and industry benchmarks to understand a company's financial health and performance comprehensively.