Return on Equity (ROE) measures the profitability of equity employed and indicates how efficiently a company uses its equity to generate profits. It is calculated by dividing net income by average equity. A higher ROE suggests that a company is operating profitably and delivering attractive returns to equity investors. However, an excessively high ROE may also signal excessive leverage.
Under the Standardised Credit Risk Approach (SCRA) as outlined in CRR III, ROE has an indirect impact on assessing a company's risk profile. It reflects not only profitability but also potential risks associated with a specific capital structure.
