What is ROE and how to calculate it, know its easiest formula

ROE is the correct way to measure a company’s performance and profits.

If we talk about TD Power System, a listed company in the stock market, then its ROE is 13%. This shows that for every Re 1 invested by the shareholders, the company has earned a profit of 13 paise. Now here the sector average ROE is 9.9 percent, so it shows that the company is performing better than the rest of the companies in its sector and further growth can be expected here in future.

-Vipul Singh

Who does not have the desire to earn big profits by investing a little money in the stock market? However, only a few succeed in doing so. The reason is clear that most people do not understand the market. Nor do they know the right way to choose a company for investment. The companies listed in the stock market release their results every quarter, which gives an idea about their financial position. Along with this, market experts also take help of some special formulas based on these results, which gives them an idea of ​​the future course of a particular company. one such formula is ROE ,ROE) with the help of which you can guess the direction of any company and by choosing a strong company, you can earn big money in the coming time.

So today we will tell you return on equity What is it and how can you choose the right company for investment with its help. Actually ROE is the correct way to measure the performance and profit of a company. Through this we can also know whether investing in a company will be beneficial or not. Companies with ROE indicate how efficiently they have used shareholders’ money. Companies that consistently maintain high ROE also show that they have low debt and interest expense is also very low. ROE not only reflects the growth of the company, but through this we can also understand whether the company will continue to give dividend in the coming times or not. Whether the company has sufficient capital to pay the shareholders.

ROE Calculation Formula

Now let us also understand how we calculate ROE. So the method is very easy for this too… So for this first we take out the net income of the company. Net income is the amount left after deducting interest, company expenses, taxes and other other expenses from the total income of the company. Now divide the net income by the shareholders’ equity, then the figure that comes is called ROE.

ROE= Net Income (Revenue-Expenses, Tax, Interest and other Expenses)/ Shareholders Equity

understand with this example

Now for example, if we talk about TD Power System, a company listed in the stock market, then its ROE is 13%. This shows that for every Re 1 invested by the shareholders, the company has earned a profit of 13 paise. Now here the sector’s average ROE is 9.9 percent, so it shows that the company is performing better than the rest of the companies in its sector and further growth can be expected here in future.

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But on the go, let us also tell you that ROE is an important figure to test a company, but not the last. Therefore, before investing, check the company on the rest of the scale and invest in the stock market only after doing careful research. (Money9)