How to Calculate the Return on Equity: Definition, Formula & Example


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question 1 of 3

Which of the following ROE ratios shows the greatest profitability?

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1. A company's income is $120,000. It pays out dividends of $20,000. What is the company's ROE if it has 10,000 shares with shareholders at $2?

2. What does it mean when a company has an ROE of 2.3?

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About This Quiz & Worksheet

This quiz and worksheet will expand your cognizance on calculating the return on equity. The quiz will also assess your understanding of concepts like the period of time to measure ROE and revenue.

Quiz & Worksheet Goals

Use these assessment tools to:

  • Understand what it means when ROE declines from year to year
  • Define return on equity
  • Determine the effect on ROE if the revenue is lower than the expenses for a period
  • Realize the performance factors to be analyzed before making a decision about investing in a stock

Skills Practiced

This worksheet and quiz let you practice the following skills:

  • Reading comprehension - ensure that you draw the most important information from the related lesson on calculating the return on equity
  • Making connections - use your understanding of the concept of the formula for return on equity
  • Distinguishing differences - compare and contrast topics from the lesson, such as net income and common shareholders' equity

Additional Learning

To learn more about how to calculate the return on equity, review the lesson titled Calculating the Return on Equity: Definition, Formula and Example, which covers the following objectives:

  • Understand why ROE is used and why it's important
  • Interpret net income data on a graph
  • Evaluate financial statements of a firm