What does Return on Equity (ROE) measure?

Return on Equity (ROE) is a financial metric that measures the profitability of a company in relation to shareholders' equity. It indicates how effectively management is using a company’s assets to create profits. Specifically, ROE provides insight into how much profit is generated for each dollar of equity, which reflects both profitability and the efficient use of debt when applicable.

When ROE is calculated, a high ratio suggests that a firm is able to generate a significant amount of income relative to the equity provided by shareholders, highlighting effective management and operational efficiency. This is particularly important for investors assessing the potential return on their investments, as it combines information about the firm's profit generation ability with the capital structure that includes equity and, potentially, debt.

The other choices focus on different aspects of financial performance or management rather than the specific measure of ROE. Efficiency of property management is more about operational effectiveness and does not directly tie to equity. Revenue generated per tenant does not reflect the relationship to equity or overall profitability, and asset valuation over time focuses on changes in asset worth rather than income generation relative to equity. Thus, the correct understanding of ROE as a measure of profitability and efficient use of debt is essential for evaluating a company's financial health.