1. What is Return On Common Stockholder Equity?

Return on common stockholders' equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. It's calculated after journal entries have been posted to the financial records.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• \( ROE \) — Return on equity (unitless ratio)
• \( \text{Post Entry Income} \) — Net income after journal entries (currency)
• \( \text{Post Entry Equity} \) — Common stockholders' equity after journal entries (currency)

Explanation: The ratio shows how effectively management is using shareholders' equity to generate profits after accounting for all journal entries.

3. Importance of ROE Calculation

Details: ROE is a key metric for investors evaluating a company's financial performance. Higher ROE indicates more efficient use of equity capital.

4. Using the Calculator

Tips: Enter the net income and common stockholders' equity values after all relevant journal entries have been posted. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: Generally, ROE between 15-20% is considered good, but this varies by industry. Compare with industry averages for meaningful analysis.

Q2: How does ROE differ from ROI?
A: ROE focuses specifically on returns generated on shareholders' equity, while ROI measures return on any type of investment.

Q3: Can ROE be negative?
A: Yes, if the company has negative net income (losses), the ROE will be negative, indicating poor financial performance.

Q4: Why use post-entry values?
A: Post-entry values reflect the most accurate, up-to-date financial position after all adjustments have been recorded.

Q5: How often should ROE be calculated?
A: Typically calculated quarterly and annually, coinciding with financial reporting periods.