Return on Common Equity - TTM
Normalized Net Income / Common Shareholder Equity Avg. If Common Shareholder Equity is zero or negative, then there is no ROE value. - TTM
Summary
Return on Common Equity (ROE) measures how effectively a company generates profits from shareholders' equity, calculated by dividing normalized net income by average common shareholder equity. This fundamental profitability ratio indicates how efficiently management utilizes shareholder capital to generate returns, making it one of the most important metrics for evaluating management effectiveness and business profitability. ROE focuses specifically on returns available to common shareholders, excluding the impact of preferred stock and other non-common equity claims. ROE is calculated using normalized net income, which removes one-time and extraordinary items to provide a clearer view of sustainable earning power. The metric uses average common shareholder equity to smooth out fluctuations from major capital transactions during the period. When common shareholder equity is zero or negative, ROE cannot be calculated, typically indicating financial distress or unique business situations that require special analysis.
This summary was generated by AI.
Why It's Important
Return on Common Equity is arguably the most important single metric for evaluating a company's profitability and management effectiveness from a shareholder perspective. Investors use ROE to assess how well management converts shareholder capital into profits, with higher ROE generally indicating superior operational efficiency and strategic execution. ROE serves as a key criterion for investment selection, as companies that consistently generate high ROE typically create more value for shareholders over time than those with lower returns on equity. This metric is essential for comparing companies across industries and identifying businesses with sustainable competitive advantages that enable above-average profitability. Analysts use ROE trends to evaluate whether management is improving their capital utilization over time and whether current profitability levels are sustainable. ROE also forms the foundation for dividend growth models and helps investors understand a company's capacity for self-funded growth through retained earnings. Consistent, high ROE performance often correlates with stock price appreciation and superior long-term investment returns, making it a critical factor in fundamental analysis and portfolio construction decisions.
This summary was generated by AI.
Top 10 Companies
Bottom 10 Companies
-14
-11