Return on Tangible Equity (ROTE)

Return on Tangible Equity (ROTE) is a financial metric that measures a company's profitability relative to its tangible equity, which excludes intangible assets such as goodwill or intellectual property. It is calculated by dividing net income by tangible equity (shareholders' equity minus intangible assets). ROTE provides a clearer picture of how well a company is generating returns on its physical and financial assets, making it useful for comparing firms with significant intangible assets.

Example

A company with net income of $2 million and tangible equity of $10 million has a ROTE of 20%, indicating it generates $0.20 of profit for every dollar of tangible equity.