Besides ROA, another form of financial indicator used for fundamental analysis is the ROE or the return on equity. They may sound similar but they are really completely different. Like ROA, using ROE could also signify whether a company is bound for greatness or the other way around.
The return on equity (ROE) indicator proves to be much more useful to technical analysts who make their decisions by looking at stock prices, thanks to the fact that it takes a company's profitability from shareholders into account as well. This measurement is calculated with the following formula: (Post-tax earnings) / (Shareholder Equity)
This formula calculates the amount of profit that a company generates with the profit that is acquired from the money invested by shareholders. A low ROE indicates that a company is not properly using their liquid assets and is therefore a good candidate for failure.
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