Return on Equity (ROE) Calculator
Find return on equity.
ROE measures profit generated per dollar of shareholder equity.
How the Math Works
Return on Equity (ROE) measures a company's profitability relative to shareholder equity. The calculation divides net income by equity, then multiplies by 100 to express the result as a percentage. For example, if a company earns $100,000 in net income with $500,000 in equity, the ROE is 20%, indicating the company generates 20 cents of profit for every dollar of investor capital. This percentage-based metric allows for easy comparison between companies regardless of their size or revenue scale.
Practical Applications
To calculate ROE, gather two key figures from a company's financial statements: net income from the income statement and total equity from the balance sheet. Simply input these values into the calculator—divide net income by equity, then multiply by 100. This calculation is essential for investors when evaluating potential stock investments, for managers assessing company performance, and for analysts comparing companies within the same industry to identify which businesses generate the highest returns on shareholder investment.
Day-to-Day Use
ROE helps you make informed investment decisions by revealing how efficiently companies use investor money to generate profits. When comparing stocks in your portfolio, a higher ROE generally indicates better management and more profitable operations, though extremely high values may signal excessive risk. Understanding this metric also helps you evaluate your own business's performance, identify improvement opportunities, and discuss financial health with advisors using the same standardized language that professionals use to assess company success.
Worked example
$200k ÷ $1M → 20%.
FAQ
Good ROE?
15–20%+ is often considered strong.