Return on equity measures profit against the owners’ own stake in the business — distinct from this site’s ROI calculator, which measures return on a specific investment amount rather than a company’s total equity.
How it works
Net income divided by shareholder equity. A higher ROE means more profit generated per dollar the owners have invested and left in the business.
Why a high ROE isn’t automatically good news
Heavy debt shrinks the equity base a company is measured against, which can inflate ROE without the business actually becoming more efficient — worth reading alongside this site’s debt-to-equity calculator rather than on its own.
How to use this calculator
- Enter net income and shareholder equity.
A worked example
Net income $120,000 against shareholder equity $600,000: ROE = 120,000 ÷ 600,000 × 100 = 20%.
Net income $50,000 against equity $1,000,000: ROE = 5%.
What the variables mean
| Variable | Meaning |
|---|---|
| Net income | Profit after all expenses and taxes |
| Shareholder equity | Total assets minus total liabilities — the owners’ stake in the company |
Edge cases worth knowing
ROE and ROA measure different things — ROE compares profit to owners’ equity, while ROA (this site’s separate calculator) compares it to total assets. A company with significant debt can post a high ROE while its ROA stays modest, since equity is smaller than total assets.
Zero shareholder equity makes ROE undefined — there’s no equity base to divide net income by, so the calculator returns no result.
Frequently asked questions
What’s a good ROE?
It varies by industry — capital-light businesses often show structurally higher ROE than capital-intensive ones, so comparisons work best within the same sector.
How is ROE different from ROA?
ROE measures return against equity alone; this site’s return on assets calculator measures it against everything the business owns, debt-financed or not — comparing the two shows how much of the return comes from leverage.
