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Return on Equity (ROE) is one of the most important profitability measures for a company. Return on equity reveals the ratio of company profits to the amount of shareholder equity found on the balance sheet. The ROE is very useful in comparing the profitability of a company to other companies in a same industry. Return on equity also tells us how skilled management is at creating value for shareholders. As a general rule, the higher a company's return on equity compared to other companies in the same industry, the better. The calculation for return on equity is: Net Profits / Average Owner's Equity |
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