Net profit margin tells you how much of every shilling of revenue becomes profit. Return on equity asks a different question: how hard is the shareholders' own money working for them?
In Lesson 9, net profit margin divided profit by revenue. That worked cleanly for Safaricom, but we flagged a problem: a bank like Equity Group doesn't report a single "revenue" figure the same way, so we couldn't yet compare the two companies on margin.
Return on equity (ROE) solves that problem by changing the denominator. Instead of asking "how much profit per shilling of sales," it asks "how much profit per shilling that shareholders have invested in the business." Every company — telco, bank, or anything else — has shareholders' equity on its balance sheet, so ROE is one of the first ratios that lets us line up a capital-heavy telco against a capital-heavy bank.
ROE = Profit for the year ÷ Total shareholders' equity, expressed as a percentage. It answers: "for every KShs 100 of shareholders' own money sitting in this company, how many shillings of profit did it generate this year?"
We already have both figures from statements you've seen before: profit for the year from the Statement of Profit or Loss (Lesson 1), and total equity from the Statement of Financial Position (Lesson 2).
| KShs millions | FY2024 | FY2023 |
|---|---|---|
| Profit for the year | 42,658.4 | 52,482.8 |
| Total equity | 335,747.9 | 263,365.9 |
Source: Safaricom PLC Annual Report and Financial Statements 2024, p.177, 179 (figures simplified/grouped for this lesson; audited, currency KShs millions).
Do the division:
Safaricom's ROE fell from about 19.9% to 12.7% — a bigger drop, in percentage points, than the net profit margin drop you calculated in Lesson 9. Part of the reason: total equity itself grew year over year (from 263,365.9m to 335,747.9m), so even if profit had stayed flat, ROE would have fallen simply because the same profit was now being measured against a larger pool of shareholders' money. Profit falling and equity growing both push ROE down at the same time.
Equity Group's confirmed, cross-checked figures give us total shareholders' funds directly. For profit, we use total comprehensive income for the year as a reasonable stand-in for "profit for the year" — the briefing for this course flags that Equity Group's exact profit-after-tax line (between profit before tax and total comprehensive income) hasn't been independently re-verified, so we use the confirmed comprehensive-income figure instead and note that it can include other comprehensive income items beyond ordinary trading profit.
| Shs'000 | 2024 | 2023 |
|---|---|---|
| Total comprehensive income for the year | 43,826,758 | 50,856,357 |
| Total shareholders' funds | 246,864,094 | 218,135,102 |
Source: Equity Group Holdings PLC Audited Financial Statements and Other Disclosures for the Year Ended 31 December 2024 (audited by PwC; consolidated Group figures, currency Shs'000).
Do the division:
Because we used total comprehensive income rather than a separately confirmed "profit after tax" line, treat Equity Group's 17.8% and 23.3% as approximate ROE, not a precise official figure. Total comprehensive income can include items like currency translation adjustments that ordinary trading profit doesn't. It's still a fair, transparent estimate — we're just being honest about which number went into it.
With ROE calculated the same way for both companies, we can finally put them side by side:
Both companies saw ROE fall year over year, but Equity Group's ROE stayed noticeably higher than Safaricom's in both years. That's a real observation, not a verdict — banks and telcos put shareholders' money to work in very different ways, and a bank's higher ROE partly reflects how banking business models use leverage (deposits and borrowed money) alongside shareholders' equity, which we'll dig into properly when we cover debt-to-equity in Lesson 12. For now, the point is narrower: ROE gives you a common yardstick, even between a telco and a bank, that net profit margin couldn't.
Like any ratio, ROE is a comparison tool, not a verdict on its own. A high ROE can mean a company is generating strong profit relative to shareholders' money — or it can mean the company is relying heavily on borrowed money rather than shareholders' equity, which inflates ROE without necessarily meaning the underlying business is stronger. Don't read a single year's ROE as the final word on either company; use it alongside the other ratios in this course.
Next lesson, we'll look at liquidity and solvency — using Safaricom's current assets and current liabilities to ask a more immediate question than profitability: can the company pay its bills as they come due?
Primary source for this lesson's numbers: Equity Group Holdings PLC Audited Financial Statements and Other Disclosures for the Year Ended 31 December 2024.
Something unclear, or want to dig into a line item we skipped (like "what exactly is inside total comprehensive income")? Ask your teacher — that's what these sessions are for.