Return on equity is net income minus taxes divided by total owners' equity (second option).
Return on equity is type of financial ratio. Financial ratios are information gotten from the financial statements of a company and used to make certain predictions and conclusions about the company.
Return on equity is used to make predictions about the profitability of a company. It is an example of a profitability ratio. Profitability ratios measure the ability of a firm to generate profits from its asset
Return on equity is the net income of a company divided by the average total equity. The net income is derived from the income statement and the average total equity is derived from the balance sheet.
Return on equity = net income / average total equity
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