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The return on equity ( ROE ) is a measure of the profitability of a business in relation to its equity; where:
ROE = Net Income/Average Shareholders' Equity
Thus, ROE is equal to a fiscal year's net income (after preferred stock dividends, before common stock dividends), divided by total equity (excluding preferred shares), expressed as a percentage. Because shareholder's equity can be calculated by taking all assets and subtracting all liabilities, ROE can also be thought of as a return on NAV, or assets less liabilities.
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