5. Return on Equity (ROE)

Assesses the return on shareholders' equity, reflecting how well a company generates profit from its shareholders’ investments. It’s calculated by dividing net income by shareholder equity. A higher ROE suggests effective management and strong financial performance.

Example: A company has a net income of $75,000 and shareholder equity of $300,000. The ROE would be ($75,000 / $300,000) × 100 = 25%.