What does the 'return on equity' (ROE) indicate?

Return on equity (ROE) is a critical financial metric that measures a company's ability to generate profit relative to shareholders' equity. It indicates how efficiently a firm utilizes its equity base to produce earnings. By calculating ROE, you can see how much profit a company is making for every dollar of equity invested by the shareholders.

This measure is vital for investors as it provides insight into the effectiveness of management in using equity financing to grow the business. A higher ROE signifies a more efficient use of equity, suggesting that the company is generating ample profit relative to its shareholders' investments. Therefore, option C is accurate because it encapsulates the essence of what ROE represents in terms of profitability generated by shareholders' equity.