Return on Equity (ROE) Calculator

Return on Equity (ROE) Calculator

The Return on Equity (ROE) is one of the most important financial ratios for investors and business owners. It measures how effectively a company uses shareholders’ equity to generate net profit. A higher ROE suggests that the company is delivering strong returns on investor capital, while a lower ROE may indicate inefficiency or poor capital utilization.

Our Return on Equity (ROE) Calculator allows you to quickly compute ROE using net profit and equity. This tool is highly useful for investors, analysts, and students who want to understand how well a business is rewarding its shareholders.

🔎 What is Return on Equity (ROE)?

Where:
Net Profit = Earnings after taxes and expenses
Equity = Shareholders’ funds (capital invested + retained earnings)

👉 Interpretation:
High ROE (>20%) → Indicates strong profitability and efficient use of equity.
Moderate ROE (10–20%) → Suggests average performance, depending on industry.
Low ROE (<10%) → Signals weak returns or over-capitalization.
Note: Extremely high ROEs should be reviewed carefully, as they can sometimes result from very low equity bases rather than genuine profitability.

📚 Examples of Return on Equity (ROE)

Example 1

Net Profit: $200,000
Equity: $800,000

Step 1 – Apply the Formula:

✅ Return on Equity = 25%
This company is producing strong returns for shareholders, making it an attractive investment opportunity.

Example 2

Net Profit: $90,000
Equity: $600,000

Step 1 – Apply the Formula:

✅ Return on Equity = 15%
This shows that the company generates $0.15 of profit for every $1 of equity. It reflects stable but moderate efficiency.

Example 3

Net Profit: $40,000
Equity: $700,000

Step 1 – Apply the Formula:

✅ Return on Equity = 5.71%
This indicates poor utilization of shareholder funds. Unless the company is in a highly capital-intensive industry, this low ROE may raise red flags for investors.

✨ Key Features of the ROE Calculator

💡 Why ROE Matters for Investors and Companies

Investor Confidence: A consistently high ROE indicates that a company is generating real value for shareholders.
Capital Efficiency: Helps measure whether retained earnings are reinvested wisely.
Industry Benchmarking: Comparing ROE across competitors gives deeper insights into relative performance.
Growth Potential: Companies with high ROE often have sustainable competitive advantages.
Management Performance: Shows how effectively management is deploying equity capital.