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Ratios: Return on Equity (ROE) definitions Flashcards

Ratios: Return on Equity (ROE) definitions
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  • Return on Equity
    Profitability ratio showing how much net income is generated for each dollar of common equity, typically expressed as a percentage.
  • Net Income
    Amount remaining after all expenses, taxes, and costs are subtracted from total revenue during a specific period.
  • Average Common Equity
    Mean value of common equity over a period, calculated by adding beginning and ending balances and dividing by two.
  • Common Equity
    Portion of stockholders' equity attributable to common shareholders, excluding any amounts related to preferred stock.
  • Preferred Stock
    Class of ownership with priority over common stock for dividends and assets, excluded from common equity calculations.
  • Profitability Ratio
    Financial metric used to assess a company's ability to generate earnings relative to equity, assets, or other financial elements.
  • Leverage
    Extent to which a company uses debt compared to equity in its capital structure, influencing both risk and potential returns.
  • Debt Financing
    Method of raising capital by borrowing funds, increasing financial risk but potentially boosting returns for equity holders.
  • Equity Financing
    Raising funds by issuing shares of stock, resulting in ownership dilution but no obligation for repayment.
  • Stockholders' Equity
    Total value of assets remaining after liabilities are subtracted, representing ownership interest in a company.
  • Assets
    Resources owned by a company, financed through a combination of liabilities and equity.
  • Liabilities
    Obligations or debts a company must repay, including loans and other forms of borrowed money.
  • Net Loss
    Situation where total expenses exceed total revenues, resulting in negative income for a period.
  • Percentage Return
    Expression of a ratio as a percent, indicating the proportion of income earned relative to equity invested.
  • High Risk High Reward
    Scenario where increased financial leverage can lead to greater returns for equity holders but also amplifies potential losses.