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The return on equity (ROE) ratio, calculated by dividing net income by shareholders' equity and multiplying by 100 to get a percentage, measures a company's ability to generate profit from shareholders' investments. - A higher ROE indicates efficient use of equity capital to generate earnings. - It is a key performance metric for investors, providing insights into the company's profitability and management effectiveness. - ROE helps investors compare the profitability of different companies and make informed investment decisions.
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