Return on Equity Calculator
Find return on equity from net income and equity.
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How it works
Return on equity, or ROE, measures how much profit a company generates for each dollar of shareholder equity, making it one of the most watched gauges of profitability and management effectiveness. This return on equity calculator divides net income by shareholder equity and expresses the result as a percentage. A higher ROE means the company is turning the owners' invested capital into profit more efficiently, which is exactly what shareholders want to see. Investors use ROE to compare firms within the same industry, to track a single company's performance over time, and as a component of models that estimate sustainable growth. Warren Buffett famously favours businesses with consistently high ROE achieved without excessive debt. That caveat matters: because equity shrinks when a company borrows heavily, high leverage can inflate ROE without any real improvement in operating performance, so ROE should be read alongside the debt level and return on assets. Typical healthy ROE figures vary widely by sector, but many analysts view a sustained ROE above roughly fifteen percent as strong. Enter net income and shareholder equity and the calculator returns the ratio instantly.
ROE = net income / shareholder equity
Return on equity divides a company's net income by the shareholder equity that produced it, expressing profit as a percentage of the owners' stake. Net income is the bottom-line profit after all expenses, interest and tax, while shareholder equity is the capital contributed by owners plus retained earnings. The ratio therefore shows how many cents of profit the company generates for each dollar of equity, a direct measure of how efficiently management uses owners' money.
Source:Financial statement analysis
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Worked example
How to use this calculator
- 1
Enter your values
Enter net income and shareholder equity.
- 2
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- 3
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Frequently asked questions
What is return on equity?
Return on equity is a profitability ratio that shows how much net profit a company produces for each dollar of shareholder equity. Calculated as net income divided by equity, it reveals how effectively management is using the owners' capital to generate earnings. A rising ROE generally signals improving efficiency, while a falling one may indicate deteriorating profitability or a growing equity base.
What is a good ROE?
A good ROE depends heavily on the industry, but many investors consider a sustained figure above roughly fifteen percent to be strong. Capital-light software firms often post very high ROE, while capital-intensive utilities show lower figures. The most useful comparison is against direct competitors and the company's own history, rather than a single universal benchmark applied across all sectors.
Can ROE be too high?
Yes. An unusually high ROE can be a warning sign rather than a strength if it results from heavy debt, which shrinks the equity base, or from one-off gains that will not repeat. It can also reflect share buybacks that reduce equity. Always check whether high ROE is driven by genuine operating performance or by financial engineering and leverage.
How does debt affect ROE?
Borrowing reduces shareholder equity relative to assets, so for a given level of net income, more debt mechanically raises ROE. This means two companies with identical operating performance can show very different ROE simply because one uses more leverage. To separate genuine efficiency from the effect of debt, compare ROE with return on assets, which is not distorted by borrowing.
What is the difference between ROE and ROA?
Return on equity measures profit relative to shareholder equity, while return on assets measures profit relative to all the company's assets, regardless of how they were financed. ROA is unaffected by leverage, so comparing the two reveals how much of a company's ROE comes from operating performance and how much from the use of debt in its capital structure.