Return On Average Equity - ROAE

See: Return On Average Assets - ROAA.

Shareholders' equity measures the difference between a company's assets and its liabilities. Add up everything a company owns (that gives you the asset figure). From that, subtract everything the company owes (the liability number).

You're left with shareholders' equity, or book value. (Like Ulysses/Odysseus or Puff Daddy/P. Diddy, the term goes by two names.)

To figure out return on average equity, a company divides its net income (after taxes) by its average shareholders' equity. The average equity figure is derived by adding the amount of shareholder equity at the beginning of a financial period with the amount at the end, then dividing by two. Taking the average takes into account the change over time.