1. What is Good Return On Equity?

Good Return On Equity (ROE) is a measure of financial performance calculated by comparing a company's ROE to its industry average plus any relevant adjustments. It helps determine if a company is performing better than its peers.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Industry\ Average \) — Typical ROE for companies in the same industry (%)
• \( Adjustment \) — Company-specific adjustment factor (unitless)

Explanation: The formula provides a benchmark for what constitutes a "good" ROE by accounting for industry norms and company-specific factors.

3. Importance of ROE Calculation

Details: ROE is a key profitability metric that shows how effectively management is using shareholders' equity to generate profits. Comparing to industry benchmarks helps evaluate relative performance.

4. Using the Calculator

Tips: Enter the industry average ROE percentage and any relevant adjustment factor. The calculator will determine what constitutes a good ROE for comparison purposes.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROE?
A: This varies by industry, but generally an ROE above 15% is considered good, though some industries normally have higher or lower averages.

Q2: How often should ROE be calculated?
A: ROE should be calculated quarterly along with other financial statements to track performance trends.

Q3: What factors might require an adjustment?
A: Company size, growth stage, geographic location, or unique competitive advantages might warrant adjustments to the industry average.

Q4: Are there limitations to this calculation?
A: Yes, it doesn't account for debt levels (which can inflate ROE) or one-time events that may distort the numbers.

Q5: How does this differ from ROA?
A: ROE measures return on shareholder equity, while ROA (Return on Assets) measures return on total assets, ignoring capital structure.