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Return on Equity, or ROE, is a measure that leverages the concept of Return on Investment. It is often viewed as a test of management's ability to earn a fair return on the equity stockholders have in the company. Because interest and dividends paid to creditors and preferred stockholders are fixed in their amount, a company might earn a greater or smaller return on common stockholder's equity than its Return on Assets.
Return on Equity is calculated as follows:
Net Income / Average Stockholder's Equity |
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