return on equity: meaning, definition, pronunciation and examples
C1Professional/Technical, Business/Finance
Quick answer
What does “return on equity” mean?
A financial metric measuring the profitability of a company in relation to the shareholders' equity.
Audio
Pronunciation
Definition
Meaning and Definition
A financial metric measuring the profitability of a company in relation to the shareholders' equity.
A performance ratio calculated as net income divided by shareholders' equity, indicating how effectively a company uses its owners' capital to generate profit.
Dialectal Variation
British vs American Usage
Differences
No significant lexical differences. The term is identical in both varieties of English. Pronunciations of 'equity' may vary slightly.
Connotations
Identical professional/financial connotations. No cultural differences in usage.
Frequency
Equally common in business and finance contexts in both the UK and US.
Grammar
How to Use “return on equity” in a Sentence
The company's return on equity is [ADJECTIVE/NUMBER].Investors closely watch [COMPANY'S] return on equity.To calculate return on equity, divide net income by shareholders' equity.Vocabulary
Collocations
Examples
Examples of “return on equity” in a Sentence
verb
British English
- The firm aims to return on equity at a rate exceeding 15%. (rare verbal usage)
- Management's strategy is to return more on the equity invested.
American English
- The goal is to return on equity above the industry average. (rare)
- They need to return a higher percentage on shareholder equity.
adverb
British English
- The company performed well, return-on-equity-wise. (highly informal)
American English
- The stock is attractive, especially return-on-equity-wise. (highly informal)
adjective
British English
- The return-on-equity figure was disappointing.
- We conducted a return-on-equity analysis.
American English
- The return-on-equity metric is key.
- Look at the return-on-equity calculation.
Usage
Meaning in Context
Business
Primary context. Used in reports, earnings calls, investor presentations, and financial analysis to assess corporate performance.
Academic
Used in finance, economics, and business management courses, textbooks, and research papers.
Everyday
Rarely used outside of personal investing or business discussions.
Technical
A core term in accounting, corporate finance, equity analysis, and value investing.
Vocabulary
Synonyms of “return on equity”
Strong
Neutral
Weak
Vocabulary
Antonyms of “return on equity”
Watch out
Common Mistakes When Using “return on equity”
- Mispronouncing 'equity' as /ˈiːkwɪti/.
- Confusing with 'return on assets' (ROA) or 'return on investment' (ROI).
- Using it as a verb, e.g., 'The company return-on-equities well.' (Incorrect).
FAQ
Frequently Asked Questions
It varies by industry, but generally, a ROE above 15-20% is considered good, as it often exceeds the cost of equity. It must be compared to industry peers and historical averages.
ROE specifically uses shareholders' equity in the denominator, measuring return to owners. ROI is a broader term that can use any measure of investment (e.g., total project cost) in its calculation.
Yes, if the company reports a net loss. A negative ROE indicates the company is losing money relative to the capital provided by its shareholders.
It helps investors assess how efficiently management is using their invested capital to generate profits. A high and sustainable ROE is a key indicator of a potentially good investment.
A financial metric measuring the profitability of a company in relation to the shareholders' equity.
Return on equity is usually professional/technical, business/finance in register.
Return on equity: in British English it is pronounced /rɪˌtɜːn ɒn ˈɛkwɪti/, and in American English it is pronounced /rɪˌtɝːn ɑːn ˈɛkwɪti/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “None. It is a technical term, not an idiom.”
Learning
Memory Aids
Mnemonic
Think of ROE as a scorecard for owners: Return (profit) On (from) Equity (the money they invested).
Conceptual Metaphor
PROFITABILITY IS A MEASURABLE YIELD (like a crop from planted capital).
Practice
Quiz
What does 'return on equity' (ROE) primarily measure?