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Return on Equity (ROE)
Valuation & Fundamentals
Net income divided by shareholders' equity, usually the average equity over the period.
It shows how much profit the company generates with the capital shareholders have put in and left in the business. Heavy borrowing shrinks equity and can inflate the ratio artificially, so it should be read alongside the debt-to-equity ratio.
Example
A company with annual net income of $2 billion and average equity of $10 billion has an ROE of 20%.
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