Return on Equity (ROE): Formula, Calculation, and What It Reveals About a Business
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Key terms
- EquityThe value of ownership in an asset after debts are subtracted. In real estate, it's the property value minus what you owe. In stocks, it represents ownership shares in a company.
- Home EquityThe portion of your home that you truly own, calculated as the property's market value minus what you owe on your mortgage. Builds over time through mortgage payments and property appreciation.
- HELOC (Home Equity Line of Credit)A revolving credit line secured by your home equity. You can borrow, repay, and borrow again up to your credit limit, typically with variable interest rates.
- Return on Investment (ROI)A measure of investment profitability, calculated as (gain minus cost) divided by cost, expressed as a percentage. A $1,000 investment returning $1,200 has a 20% ROI.
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