Return on Equity (ROE): A Comprehensive Guide for Indian Investors

What is ROE?

Return on Equity (ROE) is a financial ratio that measures how efficiently a company uses its shareholders' equity to generate profit.

Here’s the basic formula:

ROE = ( Net Profit / Shareholders' Equity ) × 100

Why Is ROE Important?

ROE Helps Investors Understand:

• Indicates how much profit a company makes for every ₹1 of shareholders’ money.
• A higher ROE suggests better efficiency and profitability.
• It is often used to compare companies within the same industry.

An Example

If a company has a net profit of ₹100 crore and shareholders' equity of ₹500 crore:

ROE = (100 / 500) × 100 = 20%

This means the company earns ₹0.20 for every ₹1 of equity invested.

Other Similar Metrics

• ROCE (Return on Capital Employed)
• ROA (Return on Assets)
• Return on Invested Capital (ROIC)

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Integrated Investment Update, May 16–31, 2025