Return on Equity (ROE) Calculator
Calculate return on equity (ROE) from net income and shareholder equity to measure how much profit a company generates per dollar of shareholder investment.
$
$
Return on Equity (ROE)
15.00%
How to Use the Return on Equity (ROE) Calculator
Enter a company's net income and shareholder equity to calculate return on equity (ROE) — a profitability ratio that measures how much profit a company generates for every dollar shareholders have invested. Unlike return on assets, ROE looks only at the equity portion of a company's financing, so it's directly affected by how much of the company's assets are debt-financed versus equity-financed.
Example
A company with $120,000.00 in net income and $800,000.00 in shareholder equity has an ROE of (120,000 ÷ 800,000) × 100 = 15%, meaning it generates 15 cents of profit for every dollar shareholders have invested.
Common Use Cases
- Evaluating how efficiently a company turns shareholder investment into profit.
- Comparing ROE across companies as part of stock investment research.
- Tracking how a company's profitability to shareholders changes over time.
FAQs
- How does ROE relate to Return on Assets (ROA)? ROE measures return specifically on shareholders' equity — the portion of financing owners actually contributed. ROA measures return on ALL assets a company controls, regardless of financing source. Because debt-financed assets still generate income but aren't counted in the equity base, a leveraged company (one financed heavily with debt) typically shows a higher ROE than ROA — leverage amplifies ROE without necessarily improving underlying asset efficiency.
- Can a high ROE be a warning sign? Yes — an unusually high ROE can sometimes result from heavy debt financing (leverage) rather than genuinely strong operations, or from a company with very little equity due to buybacks or accumulated losses. Compare ROE alongside ROA and debt levels to get the full picture.
- What's a typical "good" ROE? It varies by industry, but ROE in the 15-20% range is often considered strong for many sectors. Compare a company's ROE against close industry peers rather than a single universal benchmark, since capital intensity differs widely across industries.