Return on Equity (ROE) Calculator

Calculate Return on Equity

Use this calculator to determine the Return on Equity (ROE) for a company. Enter the net income and shareholders' equity to evaluate the company's profitability relative to its equity.

How to Calculate Return on Equity (ROE)

Return on Equity (ROE) is a crucial financial metric that measures a company's profitability in relation to its shareholders' equity. It indicates how efficiently a company is using its equity to generate profits. Understanding and calculating ROE is essential for investors and financial analysts in evaluating a company's financial performance.

Return on Equity Formula

The formula for calculating Return on Equity is:

$$\text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} \times 100\%$$

Where:

  • Net Income: The company's total earnings or profit
  • Shareholders' Equity: The total assets minus total liabilities, representing the shareholders' residual claim on assets

Calculation Steps

  1. Determine the company's net income from its income statement.
  2. Find the shareholders' equity from the company's balance sheet.
  3. Divide the net income by the shareholders' equity.
  4. Multiply the result by 100 to express it as a percentage.

Example Calculation

Let's calculate the ROE for a company with the following financial data:

  • Net Income: $1,000,000
  • Shareholders' Equity: $5,000,000

Step 1: Apply the formula

$$\text{ROE} = \frac{1,000,000}{5,000,000} \times 100\%$$

Step 2: Calculate the result

$$\text{ROE} = 0.2 \times 100\% = 20\%$$

Therefore, the Return on Equity for this company is 20%.

Visual Representation

Net Income Equity Financial Components Amount ($)

This diagram illustrates the components of ROE calculation. The blue bar represents the net income, and the green bar represents the shareholders' equity. The ratio between these two values determines the Return on Equity.

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