Return on Equity Calculator
From net income and shareholders' equity, compute ROE: net income ÷ shareholders' equity × 100, the return to shareholders.
Input Data
Results
At a glance:Return on equity shows the return generated on owners' capital. ROE = net income ÷ shareholders' equity × 100. Higher is generally better, but a very high ROE may reflect high financial leverage.
Formula
ROE = net income ÷ shareholders' equity × 100.
$$\text{ROE} = \dfrac{\text{Net Income}}{\text{Shareholders' Equity}} \times 100\%$$$$\text{ROE} = \text{Net Margin} \times \text{Asset Turnover} \times \text{Equity Multiplier}$$How to Use
- Enter the net income.
- Enter the shareholders' equity.
- Read the ROE.
FAQ
What ROE is considered good?
There is no absolute standard, but a ROE that steadily stays above 15% long term is generally seen as excellent, reflecting consistent value creation for shareholders. Compare with peers — reasonable ROE varies greatly by industry. More important is the quality of the ROE: earned through high margin and efficiency, or pushed up by heavy borrowing. Stable, sustainable, non-excessive-leverage ROE is the truly admirable kind.
Why can a high ROE also be a warning sign?
Because ROE's denominator is shareholders' equity; if a firm borrows heavily, equity shrinks and even flat profit lifts ROE via leverage. That debt-fuelled high ROE also amplifies financial risk — if business sours or rates rise, the debt can sink the company. Buybacks and large dividends also shrink equity and lift ROE. So judge it with the debt ratio and ROA.
What is the difference between ROE and ROA?
ROE's denominator is shareholders' equity — the return on each dollar of owners' capital. ROA's denominator is total assets (including debt) — the efficiency of using all assets. The gap mainly comes from leverage: the more a firm borrows, the higher ROE is relative to ROA. Viewing both tells you whether high return comes from operations (high ROA) or leverage (ROE far above ROA).
How does DuPont analysis break down ROE?
DuPont splits ROE into three parts: ROE = net margin × asset turnover × equity multiplier. Net margin reflects earning power, asset turnover reflects asset-use efficiency, and the equity multiplier reflects financial leverage. The same ROE can come from different mixes — high margin (brands), high turnover (retail), or high leverage (finance, property). Breaking it down reveals sustainability and hidden risk.
Should I use period-end or average shareholders' equity for ROE?
This calculator simplifies by using a point-in-time (usually period-end) equity as the denominator. Rigorous analysis uses the average of opening and closing equity, because net profit accrues over the whole year while equity fluctuates from profit, dividends, new issuance or buybacks. If equity swings a lot during the year, average equity gives a more realistic ROE.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.