investing guide

How Do You Determine Return On Equity - ROE

So how do you determine return on equity?

Return on equity (ROE) is used to determine how effectively a company is being managed. When using ROE to evaluate a company you are looking for an ROE greater than 15 percent and rising.

To keep it simple, a higher ROE is suppose to mean a company is being run efficiently. Although please remember you can not always trust any one specific ratio or number when picking stocks.

ROE is figured out by dividing net income by net worth. This is not always easy to do because a managers efficiency can be hard to actually calculate.

Which is exactly the reason why you should use several different methods when picking stocks. By comparing different fundamentals you may be able to figure out real numbers from false numbers.