Return on Equity (ROE) is used in fundamental analysis of a stock. The purpose of ROE is to measure how good management is at using the resources they've been given to generate profits. A higher percentage is better, but higher is somewhat relative to the industry peers.

The formula is:

ROE = Net Income/Average Shareholders' Equity

Net Income is the amount of income generated (sans expenses and taxes) in a time period. Average Shareholders' Equity is the previous equity plus the current equity divided by two.

Average = (Prev. Equity + Curr. Equity) / 2

Using Apple as an example:

• Net Income = $59.5 billion

• Previous Equity = $134 billion

• Current Equity = $107.1 billion

• Average Shareholders' Equity = $120.55 billion

• ROE = 49% -> 59.5/120.55 = 0.49

Jerry Robinson recommends a ROE of at least 15%.

Citations

• (The Complete Position Trading Course #citation)
• • Fundamentals 101
• https://www.investopedia.com/terms/r/returnonequity.asp

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