Definition

Return on Equity:

Measure of how well-organized a company is at making profits.

Is that all there is to "Return on Equity", Could I please get more information.

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  1. http://en.wikipedia.org/wiki/Return_on_equity

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    Ms. Sue
  2. measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable.

    I don't understand.

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  3. ROE is equal to a fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage. As with many financial ratios, ROE is best used to compare companies in the same industry.

    What is fiscal year, I think its a 12 month period. I don't really understand some bits of the information.

    High ROE yields no immediate benefit. Since stock prices are most strongly determined by earnings per share (EPS), you will be paying twice as much (in Price/Book terms) for a 20% ROE company as for a 10% ROE company.

    SO basically with a high ROE you cant get good benefits.

    The benefit comes from the earnings reinvested in the company at a high ROE rate, which in turn gives the company a high growth rate. The benefit can also come as a dividend on common shares or as a combination of dividends and reinvestment in the company. ROE is presumably irrelevant if the earnings are not reinvested.

    HUH?

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