return on equity

Relationship between a company's net profits and its shareholder's equity, expressed as a ratio. It is calculated by dividing total net profits by total shareholder equity, and multiplying by 100. The measure can be used as a benchmark to compare companies across industries. A percentage figure in the 10% to 35% range indicates a potentially healthy company. Higher numbers suggest rapid growth, and the company will need to maintain growth, or cut costs, to keep the figure high. The main drawback with ROE as a measure is that it takes no account of debt or gearing.