One of the primary motivations for running the business, according to Kamar (2017), is to produce a

profit that will benefit the shareholders. The percentage of Return on Equity serves as a success indicator
for this goal (ROE). The ability of a corporation to make a profit after taxes using its own capital is
measured by its return on equity (Hertina & Saudi, 2019). This ratio looks at how well a business utilises
its assets to generate a return on equity. The return on equity ratio may be used to assess how well
management is using the company's capital to generate returns for shareholders; the higher this ratio, the
better because it offers owners a higher rate of return (Akbar, 2021) However, Return on Equity is then
used as a good indicator of whether the company is even capable of generating a return that is worth
whatever risk the investment may entail because it does not specify how much cash will be returned to the
shareholders as that depends on the company's decision about dividend payments and on how much the
stock price increases (Berzkalne & Zelgalve, 2014).
In order to determine the total profitability for the company's owners, return on equity examines the key
factors of the business (returns excluding all types of expenses). It is important to remember that stock
holders are at the bottom of a firm's financing ladder, and the income paid to them is a valuable indicator
of the surplus earnings that are left over after paying for necessary commitments and reinvesting in the
company. This means that Return on Equity is a measure of net income (earnings after interest, tax, and
preference share dividend) as a percentage of total shareholders' equity because the result displays excess
income as a percentage of total equity after making required payments like interest, tax, and preference
share dividends (Asiedu, Adegbedzi, Oduro, & Iddrisu, 2020).

The more efficient and effective the management of the company is, or, to put it another way, the better
the firm's performance, which influences investor interest in investing in companies and leads to a high
supply and high stock returns. The Return on Equity variable has a positive and large impact on stock
returns, according to studies by Karim (2016) and Hamka (2013). This is in contrast to the findings of
Hertina and Saudi (2019), who came to the conclusion that Return on Equity had no impact on the stock
returns of real estate and property companies listed on the Indonesia Stock Exchange between 2012 and
2016. The stock returns of mining companies listed on the Indonesia Stock Exchange are likewise not
significantly impacted by Return on Equity (Nurmayasari, Umar, & Indriani, 2021). According to this
paradox, stock returns cannot be greatly increased or decreased when Return on Equity is raised or
lowered. Nevertheless, it may be attributed to cyclical fluctuations in profit since there was a global
reduction in mining company earnings, which caused Return on Equity to decrease in the research period.

Return on Equity is also used by academics as a metric for profitability and performance in connection to
working capital management and financial structure since it measures how profitable a company is and
how effectively it generates those profits. According to a study on Bangladeshi pharmaceutical
companies, effective working capital management is crucial to ensuring profitability as determined by
Return on Equity (Chowdhury, Alam, Sultana, & Hamid, 2018). Since they were able to manage their
capital well, Heikal, Khaddafi, and Ummah (2014) discovered that Return on Equity has a favorable and
substantial impact on the Automotive on Indonesia Stock Exchange as a measure of profitability. Nairobi
Stock Exchange manufacturing enterprises' performance was also evaluated using return on equity, with
notable results (Wesley, Musiega, Douglas, & Atika, 2013). In their study of the relationship between
working capital management and profitability of Ghanaian listed manufacturing firms using return on
equity as one of the profitability ratios, Akoto, Awunyo-Vitor, and Angmor (2013) further advise
managers of listed manufacturing firms in Ghana to implement prudent WCM policies to overcome
liquidity crises and improve their profitability. Although Hasan, Ahsan, Rahaman, and Alam (2014)
found a negative correlation between the financial structure ratios and the company's financial success as
assessed by Return on Equity, they also found no statistically significant association between the two.

Return on equity, along with other profitability ratios, is regarded as an excellent performance metric. For
owners and investors, return on equity offers a window into the profitability of the company. In other
words, it aids investors in determining if they are receiving a decent return on their investment and serves
as a wonderful tool for assessing how well a company can use its equity. The return on equity formula
may also be used to project your company's sustainable growth rates because it takes into account
operational, investment, finance, and tax-related decisions.