ROE Calculator

Net income

Shareholders' equity

Return on equity (ROE)

Enter any two of net income, shareholders' equity, and ROE. The calculator solves for the third.

Break ROE down (DuPont)

Enter revenue and total assets to split ROE into net margin, asset turnover, and the equity multiplier, and to compare it with ROA.

Estimate sustainable growth

Enter the dividend payout ratio to see how fast the company can grow without raising new equity.

Use average equity

Enter beginning and ending equity balances to work from the average, the way analysts do.

Please input values into the fields

Was this calculator helpful?

It takes one click and shapes what we fix next.

Add as preferred on Google

Compare with typical industry ROEs

Plot your ROE against typical figures for banks, utilities, manufacturing, retail, and software.

The return on equity (ROE) measures how much profit a company makes per dollar of shareholders' equity. It's calculated by dividing net income by shareholders' equity and expressing the result as a percentage. If ROE is 15%, it means that during this year, the company made $0.15 in profits for every $1 of shareholder equity.

If you enter two of the three values - net profit, equity or ROE - this tool will calculate the third value. If you know the net profit and equity, then you can determine the ROE. If either the target ROE or one of the numeric values is known, then the other value can be calculated. This is useful when you need to work out what profit would be required to achieve a particular return on equity given an amount of equity.

Formula to calculate return on equity:

ROE is calculated by dividing net income by shareholders' equity and expressing the result as a percentage.

\text{ROE} = \left(\frac{\text{Net Income}}{\text{Shareholders' Equity}}\right) \times 100

By rearranging the formula, the remaining two unknown values can be determined using the same relationship.

\text{Net Income} = \frac{\text{ROE} \times \text{Equity}}{100}

\text{Equity} = \frac{\text{Net Income}}{\text{ROE}} \times 100

To help you understand this better, let's take a concrete example: if the net profit is $34,500 and equity is $456,000 then ROE would be about 7.6. In other words, during that period of time, the company made a profit of about $7.6 for every $100 of equity it had in place.

Term	Where it comes from	Example
Net income	Bottom line of the income statement	34,500
Shareholders' equity	Balance sheet: assets minus liabilities	456,000
Return on equity	Net income / equity x 100	7.6%

Equity is sometimes referred to as "net worth", and so return on equity (ROE) is also called the "return on net worth". The calculation uses net income before dividends are paid out to preferred shareholders, and the dividend on preferred stock must be subtracted first since it accrues to other investors.

Average equity

While net income is earned over a period of time, equity as shown on the balance sheet represents only one point in time. To make periods comparable, analysts usually use the average of equity at the beginning and end of the period instead of year-end value.

\text{Average Equity} = \frac{\text{Beginning Equity} + \text{Ending Equity}}{2}

Using an average smooths out the effects of large share buybacks, capital raises or dividend payments that have occurred during the year. If these fluctuations were used directly, the metrics could be skewed. By enabling "Use Average Equity" you can simply enter two values and the calculator will calculate the average for you.

How to use this calculator:

Enter net income and equity for the same period, then select the appropriate magnitude (thousands, millions or billions).
Check the ROE. If you want to work backwards, either enter a target ROE or net income or equity and the calculator will calculate the missing value.
Activate "Breakdown ROE (DuPont Analysis)", enter Turnover and Total Assets to break down the ROE into Profit Margin, Asset Turnover and Leverage and compare with Return on Assets (ROA).
If you turn on the Calculate Sustainable Growth Rate option and enter a dividend payout ratio, you can see how fast a company can grow without taking in additional equity.
If you select the Use average equity option, then the calculation is based on the average of the beginning and ending balances for the period.

What is a good ROE?

In general terms, a ROE between 15 and 20 points is usually considered good. Values between 10 and 15 points are healthy values that the company can maintain annually. Values below 5 points are usually considered low. Although they can sometimes reach dozens of percentage points, it's difficult to maintain them over an extended period.

Regardless of the ratio, context is more important than absolute value. Because averages vary widely by industry, comparable metrics are not uniform standards but rather results from competitors or your own company over a period of time.

It is about picking high-quality companies. Investors pick companies based on their return on equity (ROE), looking for those that can efficiently compound capital, and also not require continuous fundraising.
It is important to follow trends. A continuously rising return on equity (ROE) indicates sustainable competitiveness. A falling ROE can often be a harbinger of falling stock prices.
Management Assessment: ROE (Return on Equity) reflects the management's ability to manage capital provided by shareholders, so a consistently high value is usually considered an indication of confidence in the management team.

Return on equity (ROE) and the DuPont analysis.

If the ROE (Return on Equity) changes, the cause can be determined using the DuPont analysis. This analysis breaks down the ROE into three factors: profitability, efficiency and leverage.

\text{ROE} = \underbrace{\frac{\text{Net Income}}{\text{Revenue}}}_{\text{Net Margin}} \times \underbrace{\frac{\text{Revenue}}{\text{Assets}}}_{\text{Asset Turnover}} \times \underbrace{\frac{\text{Assets}}{\text{Equity}}}_{\text{Equity Multiplier}}

Net profit margin shows what percentage of sales ends up as profits. Return on equity tells how much revenue is generated per dollar invested in assets. The equity multiplier shows the leverage, or how many assets are leveraged for each dollar of equity. Two companies can have identical returns but analysis of the ratios will show which company has more leverage and what portion of earnings actually comes from debt.

ROE vs. ROA comparison:

Return on equity (ROE) and return on assets (ROA) appear similar but answer different questions. ROA divides net income by all assets, including those acquired through debt. ROE uses only the portion of equity provided by shareholders.

The difference between the two is in leverage expressed by equity multiplier. Even a company with very low profit margin can have high return on equity (ROE) by taking significant debt on lower equity while return on assets (ROA) remains low. So, ROE alone does not show risk. A 20% ROE based on higher debt is not the same as 20% ROE based on profits. Only when you compare ROE and ROA will differences be apparent. ROA can never be artificially improved by debt.

\text{ROE} = \text{ROA} \times \frac{\text{Assets}}{\text{Equity}}

The trap of negative equity.

Unlike total capital values, equity can be negative, for example after years of losses or large share buybacks and dividends in the face of high debt. When equity is negative, ROE calculation does not work. A negative return on equity results from dividing a positive profit by negative equity. Dividing a loss by negative equity leads to an apparently positive result that is completely misleading.

If you see a positive ROE, be sure to check that the equity is actually positive. If the equity is negative, then this value must be interpreted in reverse; lower values are healthier. Also note the return on assets (ROA), as it avoids the same effect since assets can never be negative.

Sustainable growth

ROE also limits the growth rate of a company that uses only its own resources. The sustainable growth rate is the product of ROE and the equity retention ratio, where the equity retention ratio is the proportion of earnings retained by the firm rather than paid out as dividends.

g = \text{ROE} \times \left(1 - \text{Payout Ratio}\right)

A company with a 20 point ROE that retains half of its earnings can grow by about 10 points each year without issuing new shares or taking on additional debt. Increasing the dividend payout lowers this limit, while increasing retained earnings raises it. If you turn on "Estimate Sustainable Growth Rate" results will be calculated based on the dividend payout ratio.

Increase in ROE

There are three levers that affect ROE and these are exactly the factors of DuPont analysis: increasing profit per sales, more efficient use of assets or changing the mix of debt and equity.

Increase profit margins. By better pricing, comprehensive cost management and moving to higher margin products you can increase the profits per sale.
Increase your turnover of capital. Disposing of idle assets and reducing slow moving inventory will allow you to make the same sales with a smaller base of capital.
Leverage. Stock buybacks and debt financing can increase the equity multiplier and raise ROE but this is the most closely watched lever because it also increases risk.

Frequently asked questions

What is a good ROE?

In general terms, a return on equity between 15 and 20 points is considered good. Values between 10 and 15 points are healthy values that can be sustained by the company in the long term. A value of less than about 5 points usually indicates low performance. However, these figures only make sense when compared to similar companies within the same industry and with regard to the historical development of the company, as average values may vary greatly from one industry to another. More important than a single figure is that the ROE increases continuously.

What is the difference between ROE and ROA?

Return on equity (ROE) divides net income by shareholders' equity. Return on assets (ROA) divides net income by total assets, including those financed with debt. The difference between the two is leverage, which is measured by the equity multiplier. A company can have a high ROE by taking on substantial amounts of debt and combining it with relatively little equity, while still having a low ROA. For this reason alone, ROE says nothing about risk, which is why analysts always consider it in conjunction with ROA. ROA is not distorted by debt.

Can ROE be negative or misleading?

Yes, this is one of the main pitfalls with ROE. If net income is negative, then ROE will also be negative. What's even more confusing is that after years of losses or large share buybacks due to high debt, equity itself can become negative. Because dividing by a negative number reverses the sign, losses associated with negative equity can appear as positive ROE. To interpret this value, you must make sure that equity is positive. In case it's negative, then it needs to be interpreted accordingly and total return on capital should be used instead.

Should you use total equity or average equity?

Analysts usually use average equity, which is the average of the values at the beginning and end of a given period. While net income is earned throughout the year, the balance sheet only represents one point in time. By averaging both ends, you can compare periods more fairly and smooth out the effects of large share repurchases, stock issues or dividends during the year. Year-end equity is fine for quick estimates, but average equity is more accurate. This calculator allows you to compute the average.

What is the DuPont Analysis of ROE?

The DuPont analysis breaks down the ROE into three factors: profit margin (net income divided by sales), asset turnover (sales divided by total assets) and equity multiplier (assets divided by equity). The profit margin measures profitability, the asset turnover measures how well assets are used, and the multiplier measures leverage. This is useful in determining which factor drives changes. In particular, it can help determine how much of a high ROE comes from the quality of the actual business operations and how much comes from debt.

What is sustainable growth rate?

Sustainable growth rate is the maximum growth rate that a company can achieve with its sales and earnings without issuing new shares or increasing debt, using only retained earnings. It is calculated by multiplying return on equity (ROE) by the proportion of earnings not paid out as dividends. A company with an ROE of 20 points that retains half of its earnings could grow at about 10 points per year from internal funds alone. This is a simple way to relate profitability, dividend policy and the need for external funding for growth.

Related calculators

ROA CalculatorCalculate return on assets, net income, or total assets from any two values, with a DuPont margin-and-turnover breakdown, return on equity and leverage, average total assets, and an industry benchmark.

Debt-to-Equity Ratio CalculatorCalculate the debt-to-equity ratio from total liabilities and stockholders' equity, or solve for either figure. Adds the debt and equity share of capital, a long-term D/E option, a target planner, and an industry benchmark.

WACC CalculatorCalculate weighted average cost of capital (WACC) from equity, debt, their costs, and the tax rate. Includes a CAPM cost-of-equity helper, an ROIC value-creation check, and reverse solving.

Equity Release CalculatorEstimate the tax-free cash you could release from your home with a lifetime mortgage or home reversion, and project the rolled-up interest and equity left over time.

CAPM CalculatorCalculate expected return and cost of equity with the Capital Asset Pricing Model (CAPM). Solve for any of the risk-free rate, beta, market return, or expected return, with a Security Market Line chart.

CTR Calculator (Click-Through Rate)Work out your click-through rate from clicks and impressions, solve for any value, and compare it to channel benchmarks for search, email, social, and display.

Disclaimer: This calculator is provided for general informational and educational purposes only. Our calculators are under active development, and results may be inaccurate, incomplete, or unsuitable for your situation. Always verify the figures independently and seek advice from a qualified professional before relying on them. We make no warranties and accept no liability for any loss or decision arising from use of this tool.

References

Corporate Finance Institute: Return on Equity (ROE)
ROE definition, the DuPont link to margin, turnover and leverage, and ROE versus ROA.
Wall Street Prep: Return on Equity (ROE)
Formula, the average-shareholders'-equity convention, and how to interpret ROE.
BDC: How to calculate and analyze return on equity
The negative-equity trap and why ROE must be paired with a debt-aware measure.