Question

What if the return on equity is decreased from one year to another?

Answer 1

Anyone who buys stock in your company hopes you'll use their investment to make more money. Return on equity (ROE) is a way to measure that. You measure ROE by dividing the owners' stake in the company into net income. If your income for the year is $50,000 and owners equity is $500,000, ROE equals 10 percent. ROE may rise or fall as different factors come into play.