ROE is an indicator of how effective management
is at using equity financing to fund operations and grow the company.
ROE can also be used in analyzing the
performance of the company as compared to its peers and the overall market.
This financial metric is especially beneficial when comparing firms within the
same industry as it tends to give accurate indications of companies which are
operating with greater financial efficiency.
A steady or increasing ROE signifies a company
which knows how to reinvest its earnings while a declining ROE is symbolic of
management that delivers poor shareholder returns from their earnings.
