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The return on equity (ROE) is a measure of the profitability of a business in relation to its equity; [1] where: . ROE = Net Income / Average Shareholders' Equity [1] Thus, ROE is equal to a fiscal year's net income (after preferred stock dividends, before common stock dividends), divided by total equity (excluding preferred shares), expressed as a percentage.
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The way momentum shows an absolute change means it shows for instance a $3 rise over 20 days, whereas ROC might show that as 0.25 for a 25% rise over the same period. One can choose between looking at a move in dollar terms, relative point terms, or proportional terms.
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RoA, RoNA, RoC, and RoIC, in particular, are similar measures with variations on how 'investment' is defined. [3] ROI is a popular metric for heads of marketing because of marketing budget allocation. Return on Investment helps identify marketing mix activities that should continue to be funded and which should be cut.
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ROCE is used to prove the value the business gains from its assets and liabilities. Companies create value whenever they are able to generate returns on capital above the weighted average cost of capital (WACC). [3]