Gain Deeper Insight

Return on equity (RoE) is an important measure of a company's profitability. DuPont analysis breaks RoE into different parts, enabling one to understand how this profitability was achieved. It also provides insight into how the company can further increase the returns that it earns for its shareholders. Return on equity Let us begin with a look at RoE. It is a simple measure that assesses how the management has fared in terms of creating wealth for its shareholders. An increasing RoE demonstrates that the company has earned more profits for each share owned by shareholders. All that you require to calculate this ratio are two numbers - net profit and shareholder's equity. RoE = Net Profit / Shareholders' Equity The problem with this number is that while it tells you whether the company's profitability

This article was originally published on October 08, 2010.