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📈Profitability Ratios

Return on Equity (ROE)

Net Income ÷ Average Stockholders' Equity × 100 = ROE %

What It Means

Return earned on shareholders' investment.

✓Higher % = better return for shareholders

Example

Net Income:$50,000
Average Stockholders' Equity:$250,000

$50,000 ÷ $250,000 × 100

ROE = 20%

→ Shareholders earned 20% return on their investment

Related Formulas

Profit Margin

Net Income ÷ Net Sales × 100 = Profit Margin %

Gross Margin Ratio

Gross Profit ÷ Net Sales × 100 = Gross Margin %

Return on Assets (ROA)

Net Income ÷ Average Total Assets × 100 = ROA %

Earnings Per Share (EPS)

(Net Income - Preferred Dividends) ÷ Weighted-Average Common Shares = EPS

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