Free Return on Equity Calculator
Calculate return on equity (ROE) to measure how effectively a company generates profit from shareholder investment.
Return on Equity (ROE)
25.00%
Return on Equity (ROE) vs Net Income
How to Calculate Return on Equity
Formula
ROE = (Net Income / Average Shareholder Equity) x 100
ROE quantifies how well a company turns owner capital into profit. Investors use it to compare management effectiveness across firms. Because ROE only considers the equity portion, companies that use more debt can show higher ROE even with moderate overall profitability. That is why it is best evaluated alongside ROA and the debt-to-equity ratio.
Example Calculation
A company reported $200,000 net income. Shareholder equity was $700,000 at the start and $900,000 at the end.
- 01Average Equity = ($700,000 + $900,000) / 2 = $800,000
- 02ROE = ($200,000 / $800,000) x 100 = 25%
- 03Shareholders earned 25 cents for every dollar of equity invested.
Frequently Asked Questions
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