Financial Terms Glossary

Return On Equity (ROE)

Formal

A simple percentage comparison between the profits generated by a business and the equity (or risk capital and shares) that the company needed to generate that profit. Eg I have £1 Million shares in a business and make £100,000 profits per annum = 10% Return On Equity.

Informal

I make a £1 Million profit every year. This sounds good, but if I have issued £100 Million of shares to provide funds to deliver this amount then this return is not so good after all. This is because I have only returned 1% on the equity or shares used in the business to realise this profit.

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