Today, several businesses—from SMEs to large corporations—leverage the power of ROE (Return on Equity). That’s because the very core of the ROE's meaning lies in its potential to help a business understand its profitability and capability to grow.
Let’s put that in simple words for you. ROE has become the go-to choose of companies who want to determine their financial performance in terms of profitability or revenue generation for the investors and owners.
Published on 03 March 2023
OPEN A FREE* DEMAT AND TRADING ACCOUNT
IN 15 MINS*
If you're unfamiliar with this measurement tool, haven't heard or read about it before, or want to learn everything you can about it, this is the article for you.
ROE Meaning
Return on Equity (ROE) measures a firm’s financial performance in terms of revenue generation for its owners. It’s basically the computation of your firm’s efficiency in generating growth and revenue.
If you divide your firm's net income (annual income) by the overall value of stockholders’ equity, you will get to know the ROE in the share market for your company. And keep in mind that your ROE will always be expressed as a percentage.
How to understand your company’s performance with ROE? Simple! If the ROE is higher, your firm is more efficient and streamlined in enhancing scalability and generating revenue via equity financing. However, it’s the sector or the industry in which your firm operates that mainly determines the ROE for it. Now that you have a basic understanding of the question "What is ROE?". Let's take a look at how to calculate return on equity (ROE).
Understanding The Return on Equity (ROE) Calculation
ROE is typically represented in percentage form. You can calculate the ROE for a firm if its equity and net income are both positive. A company calculates its net income before paying dividends to common stockholders and after paying interest to lenders and dividends to preferred stockholders.
during
Return on Equity (ROE) = Net Income / Average Equity of the Shareholder
Net income is the sum of taxes, net expenses, and income a firm produces for a specific timeframe. Adding equity at the onset of the period is an ideal way to calculate the average shareholder's equity.
The period during which you incurred the net income must coincide with the onset and end of the period. You can find the net income for the trailing 12 months or the last complete fiscal year on the income statement - a financial activity performed over that time span.
You can find out the shareholders’ equity from the company’s balance sheet, which gives you the complete history of the company’s assets and liabilities.
Calculating and determining ROE in the share market is recommended based on the average equity over a timeframe due to the contradiction between the balance sheet and the income statement.
Return on Equity (ROE) Drivers
Although the basic formula to determine the return on equity is net income divided by the shareholders’ average equity, you can categorize it into further extra drivers. Below is a representation of the ROE drivers.
ROE Drivers
Net Income / Equity → Return on Assets X Leverage
● Return on Assets → Net Income / Total Assets
● Leverage → Total Assets / Equity
Return on Equity (ROE) Example
Consider a firm with average shareholders’ equity of $14,000,000 and an annual income of around $2,400,000. Here, the ROE of the company will be $2.4 million divided by $14 million, or 17.14%.
For a real-life example, let’s consider the financials of the renowned company Apple for the financial year ending in September 2018. During this fiscal year’s end, the tech giant generated a net income worth $59.9 billion.
In the beginning, their average shareholders’ equity was $134 billion, which came down to $107.1 billion by the fiscal year’s end. Thus, the return on equity for Apple for that fiscal year was 49.4%.
Return on Equity (ROE) Limitation
Even though ROE is an ideal indicator for determining the company’s overall performance, it can’t be utilized as the only or exclusive tool. Plus, a high ROE doesn’t always necessarily indicate higher profits or growth. It can be misleading for the investors in the event that the company has excessive debts.
Often, you will find evidence of negative shareholder equity. In such cases, using the ROE to determine the company’s performance is not possible.
Ending Note
With this comprehensive guide, you will have a good understanding of ROE. You should be able to determine your company's performance much more easily now that you understand what ROE means, how to calculate it, its limitations, and everything else.
Team Espresso
We care that you succeed
Bringing readers the latest happenings from the world of Trading and Investments specifically and Finance in general.
The online margin calculator will undoubtedly be useful when determining the revenue of a specific item. But that isn't all. You can easily calculate all of the primary variables that fall under the sales procedure, which are profit, cost of goods sold, revenue, and profit margin, using this calculator.
Trading is a way to make some cash in the stock market. You will find many books and even articles about some of the most successful traders. But there is not much information on the traits of a successful trader.
Price action means the characteristics of the price movements of a security. The price movement of a security is often analysed over a shorter period of time. In simple meaning, price action trading is a technique in which traders make decisions on the basis of the movements of the price rather than simply depending upon the technical indicators.
The online margin calculator will undoubtedly be useful when determining the revenue of a specific item. But that isn't all. You can easily calculate all of the primary variables that fall under the sales procedure, which are profit, cost of goods sold, revenue, and profit margin, using this calculator.
Trading is a way to make some cash in the stock market. You will find many books and even articles about some of the most successful traders. But there is not much information on the traits of a successful trader.
Price action means the characteristics of the price movements of a security. The price movement of a security is often analysed over a shorter period of time. In simple meaning, price action trading is a technique in which traders make decisions on the basis of the movements of the price rather than simply depending upon the technical indicators.
Sharekhan Comtrade Private Limited (TM) operates the web site accessible from the URL www.myespresso.com (the “web site”').
Sharekhan Comtrade Private Limited is committed to protecting your privacy and utilising technology that gives you the most powerful, safe, online experience that you can get anywhere else.
Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.
Sharekhan Comtrade Private Limited requests the minimum information it believes necessary to achieve this goal.
The following discloses Sharekhan Comtrade Private Limited's information gathering and dissemination practices for the Web Site:
System Data:
Sharekhan Comtrade Private Limited uses your IP address to help diagnose problems with our server and to administer the web site. Your IP address is used to identify you and your shopping cart and to gather broad demographic information.
Registration Data:
The Web Site's registration form may require users to give us contact information (like their name, phone number and e-mail address), unique identifiers (like their PAN Number) and demographic information (like their pin code, age or income level). The Web Site uses customer contact information from the registration form to send the users information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Comtrade Private Limited's partners. The customer's contact information is also used to contact the visitor when necessary. Unique identifiers (such as PAN numbers) are collected to verify the user's identity. Demographic and profile data is also collected at the Web Site. We use this data to tailor the visitor's experience at the Web Site, showing them contents that we think they might be interested in, and displaying the contents according to their preferences. This information is shared with advertisers on an aggregate basis.
Links and Co-Branded Sites:
This site contains links to other Web Sites which are not necessarily been screened or reviewed by www.myespresso.com. Sharekhan Comtrade Private Limited is neither responsible for the privacy practices or the contents of such Web Sites nor shall be held answerable for the inaccurate, inappropriate or offensive data, material, information, products and services that may be viewed on those sites.
Sharekhan Comtrade Private Limited may operate a number of co-branded sites. Policies regarding information collection and sharing may differ on some of these co-branded sites. If you have any particular questions, you should check the privacy statement that appears on each co-branded site.
Order Forms:
The Web Site uses an order form for customers to request information, products and services. The Web Site collects visitors' contact information (like their mobile number or e-mail address), unique identifiers (like their PAN number) financial information (like their account or credit card numbers) and demographic information (like their pin code, age or income level). Contact information from the order form is used to send orders, information about Sharekhan Comtrade Private Limited, and promotional material from some of Sharekhan Comtrade Private Limited's partners to the visitors of the Web Site. The visitor's contact information is also used to get in touch with the visitor when necessary. Financial information that is collected is used to check the users' qualifications and bill the user for products and services. Unique identifiers (such as PAN numbers) are collected from Web Site visitors to verify the user's identity.
Surveys and Contests:
The Web Site's online surveys ask visitors for contact information (like their mobile number or e-mail address) and demographic information (like their pin code, gender, age or income level). The Web Site uses contact data from its surveys to send the user information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Ltd.'s partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below. Demographic and profile data is also collected at the Web Site. The Web Site use this data to tailor its visitor's experience at the Web Site, showing them content that it thinks they might be interested in, and displaying the content according to their preferences. This information is shared with advertisers on an aggregate basis.
Sharekhan Comtrade Private Ltd run contests on the Web Site in which we ask visitors for contact information (like their e-mail address). Sharekhan Comtrade Private Limited uses contact data from its contests to send users information about Sharekhan Comtrade Private Ltd. and promotional material from some of our partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below.
Third-Party Advertisement Servers:
Sharekhan Comtrade Private Limited engages the services of an outside advertisement company to display advertisement on the Web Site. These advertisements may contain cookies. While Sharekhan Comtrade Private Limited uses cookies in other parts of the Web Site, cookies received with banner advertisements are collected by the Advertisement company, and Sharekhan Comtrade Private Limited does not have access to this information.
Protection of your Data and Information:
The privacy and protection of your data and information provided to us is of vital importance. Sharekhan Comtrade Private Limited shall ensure to safeguard the security and confidentiality of any information you share with us. Any personally identifiable information of the customers obtained by us shall not be used or shared other than for the purposes to which the customers consents. However security and confidentiality of information cannot be guaranteed cent percent. Hence despite our utmost efforts to protect your personal information, Sharekhan Comtrade Private Limited and www.myespresso.com cannot warrant the security of any information you transmit to us through our online services. Such transmission of your personal information is done at your own risk.
Disclosure of Customer Information :
Sharekhan Comtrade Private Limited and www.myespresso.com shall not deliberately disclose customer's personally identifiable information to any unauthorized third person, save and except where such information shall be disclosed in good faith and for the purpose of law for the time being in force or to protect the rights and property of Sharekhan Comtrade Private Limited and www.myespresso.com.
Public Forums :
The Web Sites makes chat rooms, forums, message boards and/or news groups available to its users. Please remember that any information that is disclosed in these areas becomes public information and you should exercise caution when deciding to disclose your personal information.
Supplemental Information :
The Web Site supplements the information that you provide with information that is received from third parties.
The Web Site DOES NOT entice by the prospect of a special game, prize or other activity, to divulge more information than is needed to participate in the activity.
Further to the above, in light of the recently notified Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. (Hereinafter referred to as the Rules)
The following shall be deemed to be sensitive information :
Password;
Financial information such as Bank account or credit card or debit card or other payment instrument details;
Physical, physiological and mental health condition;
Sexual orientation;
Medical records and history;
Biometric information;
Any detail relating to the above clauses as provided to body corporate for providing service; and
Any of the information received under above clauses by body corporate for processing, stored or processed under lawful contract or otherwise:
provided that, any information that is freely available or accessible in public domain or furnished under the Right to Information Act, 2005 or any other law for the time being in force shall not be regarded as sensitive personal data or information for the purposes of Rules.
Collection of Information:
Compliance with KYC guidelines as per SEBI / Exchanges / Or any other Act, law or regulation requiring the same and any internal KYC guidelines formulated by Sharekhan Comtrade Private Limited.
In order to provide enhanced trading experience to the client.
In order to provide any further information to be provided to regulators.
Such information may be collected in a manner that the client is always aware of the collection and purported usage of the same. The client shall have an option to withdraw consent to share the information. However such intimation shall be required in writing. Such intimation shall only be taken into account from the date on which the same is received. Sharekhan Comtrade Private Limited may choose to stop services to such a client in case such intimation is received. Such information shall only be used for the purpose it is collected.
Clients would be allowed an option not to disclose any information to be collected, provided the same is in compliance with regulatory requirements.
Disclosure of information:
Disclosure of sensitive information would be as per the terms agreed by the clients. For any change in such terms, the clients would be informed.
Provided no consent may be required in case the same is being shared as per compliance guidelines or as required by regulators.
Any information being disclosed to third parties would be in accordance with the Rules and would be done provided such third party has the same level of compliance guidelines as Sharekhan Comtrade Private Limited.
Sharekhan Comtrade Private Limited shall allow clients to review their personal information and the same shall be allowed to be edited provided exchange guidelines relevant to the same are followed.
Sharekhan Comtrade Private Limited shall maintain reasonable security practices and procedures and maintain a comprehensive documented information security programme. In the event of an information security breach, Sharekhan Comtrade Private Limited or a person on its behalf shall be required to demonstrate as and when called upon to do so by the agency mandated under the law, that there have implemented security control measures as per their documented information security programme and information security policies and information security policies that contain managerial, technical, operational and physical security control measures that are commensurate with the information assets being protected with the nature of business.
KYC Languages
Download Client Registration Documents (Rights & Obligations, Risk Disclosure Document, Do's & Don't's) in Vernacular Language :
Note: "This document is a translated version of the client registration documents in English and is being provided in vernacular language to facilitate better understanding by the investors. In case of any ambiguity, the contents of the English version would prevail."
NDNCR Terms & Conditions
By accepting the Terms & Conditions, you authorise Espresso, its representatives and agents to provide information about various products, offers and services provided by Espresso through any mode, including telephone calls, SMSes, emails, letters and any other mode of communication. You also confirm that laws in relation to unsolicited communication referred in "National Do Not Call Registry" as laid down by "Telecom Regulatory Authority of India" will not be applicable for such information/communication.
Filing Complaints on SEBI Complaint Redress System (SCORES) - Easy and Quick
Register on the SCORES portal
Mandatory details for filing complaints on SCORES:
Name
PAN
Address
Mobile Number
Email ID
Benefits:
Effective communication
Speedy redressal of grievances
You can file complaints on SCORES through https://scores.gov.in/scores/Welcome.html
