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The cash for investment can come from prior year earnings (retained earnings), issuing new shares, or borrowing. In the first two circumstances, the ROE will capture this use of capital to develop. In the latter case, the use of debt will boost the returns, but will not adjust the equity. In this manner the use of debt will increase ROE, even although the core economics of the company stay the similar. It's effortless to recognize the 'net profit' aspect of that equation, but 'shareholders' equity' requires further explanation. It is all the money paid into the business from shareholders, plus any earnings retained.