Definition
ROE links profit with a company’s equity. In a common analytical calculation, profit attributable to specified owners is divided by the corresponding average equity. Numerator and denominator must cover the same owners and reporting period, especially for a group.
Example
If hypothetical owners’ profit is 60,000 roubles and their average equity is 300,000, ROE is 20%. But the result may coexist with substantial debt: borrowing reduces the share of own funds in financing and can raise the ratio.
Limitations
High ROE does not always mean a quality business, while negative or very small equity makes ordinary interpretation unreliable. The measure is not dividend yield or share-price growth. Compare it with debt risk, earnings durability and changes in equity, and check the effects of buybacks and one-off impairments.