Which financial metric is represented by the formula profit/equity?

The financial metric represented by the formula profit/equity is known as Return on Equity (ROE). This metric is essential for assessing how effectively a company is using its equity to generate profit. Specifically, ROE measures the rate of return on the ownership interest of shareholders, indicating how much profit is generated per dollar of equity invested.

Calculating ROE involves dividing net income (profit) by shareholders’ equity. This gives investors insight into how well their capital is being employed. A higher ROE suggests that the company is utilizing its equity base efficiently to generate profits, which can be an attractive quality for potential investors.

In contrast, Return on Investment (ROI) relates to the return generated on a specific investment compared to its cost but does not specifically focus on equity. Earnings Per Share (EPS) measures the profit attributed to each share of stock but does not directly reflect the relationship between profit and equity. The Price to Earnings Ratio (P/E Ratio) compares a company's current share price to its earnings per share, again not relating to equity directly. Understanding these distinctions clarifies the specific role of ROE in financial analysis.