Return on Equity Calculator
Calculate return on equity (ROE) from net income and shareholder equity to measure how efficiently a company turns equity into profit.
Last reviewed by the Radiatus Cloud team
Calculate return on equity, a key measure of how well a company uses shareholder capital.
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Calculate return on equity
Return on equity, or ROE, measures how much profit a company generates for each unit of shareholder equity. It is calculated by dividing net income by shareholder equity and expressing the result as a percentage. An ROE of twenty percent means the company earns twenty cents of profit annually for every dollar of equity invested by shareholders. This calculator computes the ratio directly from the two figures, which you can take from a company's income statement and balance sheet.
Shareholder equity is the company's assets minus its liabilities, representing the owners' stake in the business.
What ROE tells investors
ROE is a favourite metric of investors because it shows how effectively management turns equity into profit. A consistently high ROE suggests a strong, efficient business with a durable advantage, while a low or falling ROE can signal trouble. It is most useful when compared across companies in the same industry and over several years, since what counts as a good ROE varies by sector.
One caveat is that heavy borrowing can inflate ROE by shrinking equity, so a very high figure should be checked against the company's debt levels. All calculation happens locally in your browser.
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Frequently Asked Questions
What is the ROE formula?
Return on equity equals net income divided by shareholder equity, expressed as a percentage. Shareholder equity is assets minus liabilities.
What is a good ROE?
It varies by industry, but many investors consider an ROE above fifteen to twenty percent strong. Always compare within the same sector.
Can debt distort ROE?
Yes. High borrowing reduces equity and can inflate ROE, so a very high figure should be checked against the company\'s debt level.
Should I use average equity?
Analysts often use the average of beginning and ending equity for a period. Using the period-end figure is a common simplification.
How is ROE different from ROA?
ROE measures return on shareholder equity, while return on assets measures return on all assets, including those funded by debt.
Privacy & Security
Everything runs in your browser; nothing is uploaded.
How to Use
Enter net income and shareholder equity.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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