In corporate performance analysis, what does ROE stand for?

In corporate performance analysis, ROE stands for return on equity.

ROE measures how effectively a company generates net income from shareholders’ equity. It is commonly calculated by dividing net income by average shareholders’ equity for the period, although specific analyses may use different equity definitions.

A higher ROE can indicate efficient use of shareholder capital, but it is not automatically proof of superior performance. Debt can increase ROE by reducing the amount of equity supporting a business, while unusually high leverage can also increase financial risk.

Analysts often compare ROE among companies in the same industry because capital intensity, accounting policies, and business models vary widely. The DuPont framework breaks ROE into profit margin, asset turnover, and financial leverage, helping explain what drives the result.