What does return on equity (ROE) measure?

Return on equity (ROE) is a financial metric that measures a company's ability to generate profits from its shareholders' equity. It expresses the relationship between net income and shareholder equity, indicating how effectively management is utilizing the equity invested by shareholders to generate earnings. A higher ROE reflects greater efficiency in converting equity capital into profits, which is a key concern for investors evaluating the profitability of their investment.

In contrast, other options focus on different financial aspects. For instance, while revenue generation rate evaluates sales performance without direct relation to equity, the contribution of equity to total assets pertains to balance sheet structure rather than profitability. The option discussing the overall return to investors does not specifically isolate equity returns, making it less relevant in the context of measuring shareholder value directly through ROE. Thus, option C accurately captures the essence of what ROE is intended to assess within financial analysis.