Return on Equity (ROE) Calculator

Measure net income relative to shareholder capital and use optional statement figures to inspect margin, turnover, and leverage.

Enter net income and shareholders' equity from a consistent period. Optional values add useful DuPont-style diagnostic ratios.

Return on Equity (ROE) Calculator
Measure net income relative to shareholder capital and use optional statement figures to inspect margin, turnover, and leverage.

About Return on Equity

Return on equity, or ROE, measures net income relative to the accounting capital attributable to shareholders. The basic formula divides net income by shareholders' equity and multiplies by 100. If a company earns $5 million on $25 million of equity, ROE is 20 percent. In simple terms, the company reported twenty dollars of profit for each one hundred dollars of book equity during that period. ROE is widely used by owners and analysts because it connects profitability with the capital shareholders have invested and retained in the business. However, a high figure can arise from strong operations, heavy borrowing, unusually low equity, share repurchases, or one-time gains. It should not be interpreted as a complete measure of quality. Negative equity can make the ratio economically confusing, so the ROE calculator requires a positive denominator. The optional inputs provide parts of a DuPont analysis. Net profit margin equals net income divided by revenue. Asset turnover equals revenue divided by total assets. The equity multiplier equals total assets divided by equity. Multiplying those three factors gives ROE when the statement figures are defined consistently. This decomposition helps distinguish a high return created by healthy margins or efficient asset use from one amplified mainly by leverage. Debt to equity, shown here as total liabilities divided by equity, gives another direct view of balance-sheet leverage. For better period alignment, analysts often use average shareholders' equity and average assets from beginning and ending balance sheets because income and revenue accumulate over time. Acquisitions, stock issuance, repurchases, large dividends, write-downs, and accumulated losses can change equity sharply. Banks, insurers, manufacturers, retailers, and software companies also operate with different normal leverage and margins, making cross-industry rankings unreliable. Compare ROE with the company's prior years, direct competitors, return on assets, cash flow, debt service, and cost of equity. A rising ratio alongside weak cash generation or rapidly increasing debt deserves investigation. A temporarily lower ratio may be reasonable if newly raised capital is being invested for future growth. The calculator uses reported accounting values and does not normalize unusual items, comprehensive income, preferred equity, or minority interests. It provides a transparent ratio and supporting diagnostics, not a forecast, valuation, or recommendation. Always document the exact equity and income definitions used so repeated calculations remain comparable.

ROE Calculation Examples

InputsResultNotes
$5 million net income; $25 million equity20.00% ROEThe business earns $20 per $100 of book equity.
$1 million net income; $10 million equity10.00% ROEWith $15 million assets, the equity multiplier is 1.50.
$2 million net income; $40 million equity5.00% ROEA lower return may reflect margins, asset utilization, leverage, or a combination.

How to Calculate ROE

  1. Enter net income for the selected reporting period.
  2. Enter shareholders' equity, preferably the average of beginning and ending balances.
  3. Optionally add revenue, assets, and liabilities to calculate operating and leverage diagnostics.
  4. Select Calculate and compare ROE and its drivers with consistent prior periods and peers.

Return on Equity FAQ

Should I use average shareholders' equity?
Average beginning and ending equity usually aligns better with income earned throughout the period. Ending equity can overstate or understate ROE after a large issuance, repurchase, or dividend.
Can debt increase ROE?
Yes. Borrowing can reduce the equity share of financing and amplify ROE, while also increasing financial risk.
What is a good ROE?
Appropriate levels vary by industry, leverage, and business maturity. Compare close peers and several years.
Why is negative equity rejected?
ROE based on negative book equity can reverse normal interpretation and is generally not meaningful as a standard return ratio. Investigate accumulated losses, write-downs, and leverage instead of forcing the percentage.
How does the DuPont identity help?
It separates ROE into profit margin, asset turnover, and leverage, showing which operating or financing driver explains the result. Optional revenue, assets, and liabilities inputs populate those factors when provided.

Related tools

Balance Transfer Calculator - Credit Card Savings
Balance transfer calculator for credit card fees, intro APR, payoff interest, and estimated savings. Compare repayment options before moving debt.
EBITDA Margin Calculator - Operating Profit Percentage
Calculate EBITDA margin from revenue and EBITDA, or derive EBITDA from net income and add-backs to compare operating profitability across periods.
Immediate Annuity Calculator - Retirement Income
Estimate periodic retirement income from an immediate annuity using initial investment, rate, duration, payment frequency, inflation, and optional tax rate.
SWP Calculator - Systematic Withdrawal Plan
Project a systematic withdrawal plan ending balance, total withdrawn, and investment gain from return, duration, and withdrawal frequency.
Money Factor Calculator - Lease Payment and Rate
Convert a lease money factor to an interest rate and estimate monthly payment plus total cost from cap cost, residual, and term. Compare offers.
Sales Tax Calculator - Add or Remove VAT and GST
Calculate sales tax, pre-tax price, and total cost when adding tax to an amount or removing included VAT, GST, or sales tax from a tax-inclusive total.
Gross Margin Calculator - Profit and Margin Rate
Calculate gross profit, gross margin percentage, adjusted net sales, and COGS ratio from sales and product cost. Check the margin now.
SaaS Lifetime Value Calculator - CLV and Retention
Calculate customer lifetime value, expected customer lifetime, LTV-to-CAC ratio, and monthly revenue from ARPU, churn, growth, and customer count assumptions.