Return on equity or ROE measures the capacity of the capital invested by shareholders and partners (equity) to achieve a certain level of profit.
Return on equity is equal to the ratio of the net self-financing capacity (net self-financing capacity = self-financing capacity decreases expenditure to maintain production potential intended for replacing production plant and covering operating risks) to equity (equity=share capital
+ issue, merger and share premiums, etc.;
+ revaluation adjustments;
+ mandatory reserve;
+ statutory or contractual reserves;
+ regulated reserves;
+ other reserves;
+ retained earnings;
+ result of the period;
+ investment subsidies;
+ regulated provisions).
Return on equity is a ratio intended only for shareholders, while return on assets concerns the performances of the company.