Return on equity
1. Financial reporting and management accounting.
A measure of how much profit is enjoyed (or expected to be enjoyed) by equity investors, compared to the book value of the equity investment made.
Profit is measured as profit after tax.
ROE is calculated as:
Profit after tax / (book value of equity)
2. Corporate finance.
A measure of how much return is enjoyed (or expected to be enjoyed) by equity investors, compared to the market value of their shares.
The return includes dividends received and receivable, together with any gain or loss on the market value of the shares.
Subject to any tax differentials, the return on equity to shareholders will be the same as the cost of equity to the issuing company.