About the Return on Equity Calculator
Return on equity (ROE) measures how much profit a company generates for every dollar of shareholders’ equity. It is a favourite of investors because it links the income statement to the balance sheet and shows how effectively owners’ capital is being put to work.
A single ROE figure can hide very different stories, so this calculator also runs the three-step DuPont analysis. It splits ROE into net profit margin (how much of each sale becomes profit), asset turnover (how much revenue each dollar of assets produces) and the equity multiplier (how much the business relies on debt). Multiply the three and you get ROE back.
Use annual net income and average total assets and equity for the same year where possible. It works for public companies you are researching and for your own small business when you want to compare returns with other uses of your capital.
With the default inputs, the return on equity is 15%. Change any value above to recalculate instantly.
How to use the return on equity calculator
- 1Enter annual net income from the income statement.
- 2Enter annual revenue for the same year.
- 3Enter average total assets and average shareholders’ equity from the balance sheet.
- 4Read ROE and use the DuPont ratios to see what drives it.
Formula and method
ROE divides net income by shareholders’ equity. The DuPont identity multiplies three ratios whose middle terms cancel out: net profit margin (profitability), asset turnover (efficiency) and the equity multiplier (financial leverage). Their product is always equal to ROE, which lets you see whether a high ROE comes from strong margins, efficient use of assets or heavy borrowing.
Return on assets is net income ÷ total assets, so ROE = ROA × equity multiplier. Liabilities-to-equity is (assets − equity) ÷ equity. Using average balances for the year matches income earned over the year with the capital available during it.
- Net margin
- Net income ÷ revenue
- Asset turnover
- Revenue ÷ average total assets
- Equity multiplier
- Average total assets ÷ average equity
Worked examples
Mid-size company
Net income of $120,000 on $800,000 equity is a 15% ROE. DuPont: an 8% margin × 0.75 asset turnover × 2.5 equity multiplier = 15%. Return on assets is 6%.
Thin margins, high leverage
ROE is a strong 20%, but the breakdown shows a slim 2.5% margin, fast 2× asset turnover and a 4× equity multiplier — three quarters of assets are funded with liabilities.
Frequently asked questions
What is a good return on equity?+
Many investors look for ROE of roughly 15% or more, but it varies by industry. Utilities and banks usually have lower ROE than software companies, so compare with peers and check that high ROE is not driven purely by debt.
Why use DuPont analysis?+
DuPont analysis shows why ROE is high or low. Two companies with the same ROE may get there through strong margins, rapid asset turnover or heavy leverage, and each carries different risks.
Can ROE be negative?+
Yes. A net loss produces a negative ROE. If equity itself is negative (liabilities exceed assets), ROE is not meaningful and should not be compared.
What is the difference between ROE and ROA?+
ROA divides net income by total assets, measuring returns on all capital. ROE divides by equity only, so it is higher than ROA whenever the company uses debt: ROE = ROA × equity multiplier.
Should I use average or ending equity?+
Average equity — the mean of the opening and closing balances — is more accurate because profit is earned throughout the year. Ending equity is acceptable for a quick estimate when equity changed little.