What Is Return on Equity (ROE)?
Return on Equity (ROE) measures how efficiently a company turns shareholders' invested capital into profit. Expressed as a percentage, it tells investors how many dollars of net income are generated for every dollar of equity. A higher ROE generally signals a more efficient, profitable business, though it should always be compared against industry peers.
How to Use This Calculator
Enter the company's net income (after-tax profit, found at the bottom of the income statement) and the shareholders' equity (total assets minus total liabilities, from the balance sheet). Click calculate to instantly see the ROE percentage. Use figures from the same reporting period for an accurate result.
The Formula Explained
The calculation is simple:
$$\text{ROE} = \frac{\text{Net Income}}{\text{Shareholders Equity}} \times 100\%$$
Net income is the company's total earnings after taxes and expenses. Shareholders' equity represents the owners' residual claim on assets. Multiplying the ratio by 100 converts it into a familiar percentage.
Worked Example
Suppose a company reports net income of $200,000 and shareholders' equity of $1,000,000. The ROE is $$(200{,}000 \div 1{,}000{,}000) \times 100 = 20\%$$ This means the company generated 20 cents of profit for every dollar of equity invested by its shareholders.
FAQ
What is a good ROE? Many investors view an ROE of 15–20% as strong, but ideal levels vary widely by industry. Always benchmark against similar companies.
Can ROE be negative? Yes. If the company has a net loss, ROE turns negative, indicating it destroyed shareholder value during the period.
Should I use average equity? For more precision, some analysts use the average of beginning and ending equity. This calculator uses the single equity figure you provide.
