Return on Equity (ROE) is a financial metric that measures a company's profitability in relation to shareholders' equity. It indicates how effectively a company uses its equity to generate profits. ROE is calculated by dividing net income by average shareholders' equity, expressed as a percentage. A higher ROE suggests that a company is efficient at turning equity investments into profit, which can attract investors. Conversely, a low ROE may indicate inefficiencies or challenges in generating returns. Investors often use ROE to compare the financial performance of companies within the same industry.