Return on Equity (ROE) is a financial performance metric that measures how profitable a company is by dividing its net income by shareholders equity. Shareholders equity is the difference between a companys assets and its debt, and ROE is considered a gauge of a corporations profitability and how efficient it is in generating profits. The higher the ROE, the more efficient a companys management is at generating income and growth from its equity financing. ROE is a two-part ratio that brings together the income statement and the balance sheet, where net income or profit is compared to the shareholders equity. ROE is expressed as a percentage and can be used to compare a companys performance to the industry average. A higher ROE signals that a company efficiently uses its shareholders equity to generate income, while a declining ROE can mean that management is making poor decisions on reinvesting capital. However, ROE can sometimes be misleading and can be distorted by dishonest accounting, and it excludes a companys intangible assets such as intellectual property and brand recognition from the calculation. Therefore, while ROE can help investors identify a potentially profitable stock, it has its drawbacks and is not the only metric an investor should review when evaluating a stock.