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, making it an attractive option for investors. Conversely, a low ROE may indicate inefficiencies or challenges in generating returns. Investors often compare ROE across companies in the same industry to assess relative performance.