What does the Return on Equity measure?

Return on Equity (ROE) is a financial metric that measures the effectiveness of a company in utilizing the funds contributed by shareholders to generate profits. It indicates how well a company is able to turn the investment made by its equity holders into earnings. By calculating ROE, which is typically expressed as a percentage, stakeholders get insights into how effectively their capital is being used to generate profits. A higher ROE signifies that the company is efficient in making a profit from their equity base, making it an essential indicator for investors when assessing a company's financial health and performance.

In contrast, other options focus on different aspects of business performance that do not directly relate to the shareholder equity perspective. For instance, liquidity of current assets pertains to a company's ability to meet its short-term obligations, while market share growth relates to a company's position in the market relative to its competitors. Operational efficiency deals with how well a company uses its resources to produce value, but does not specifically assess the returns generated on shareholder investments. These measures are important but do not reflect the direct relationship between shareholder equity and profit generation that ROE highlights.