Return on equity (ROE) is the single most watched profitability ratio in fundamental analysis. It tells you how many cents of profit a company generates for every dollar of shareholders' equity — in other words, how efficiently management turns the owners' capital into earnings. A company with a 15% ROE produces $0.15 of profit each year for every $1.00 of book equity.
This calculator does more than divide net income by equity. It also runs the full DuPont decomposition, breaking ROE into three drivers: net profit margin, asset turnover, and financial leverage. That breakdown matters because two companies can both post a 15% ROE for completely different reasons — one by pricing power and fat margins, the other by borrowing heavily to juice a thin-margin business. Only the decomposition reveals which kind of ROE you are looking at.
Adjust the inputs and every figure updates instantly.
How to Use
- Enter Net Income — the bottom-line profit from the income statement, after taxes, interest, and non-controlling interests. Use the most recent full fiscal year for a steady reading.
- Enter Shareholders' Equity — total assets minus total liabilities from the balance sheet. For a more accurate DuPont model, analysts often use average equity (beginning plus ending divided by two), but the simple point-in-time figure is fine for a quick screen.
- Optionally add Revenue — total sales for the same period. This unlocks the DuPont net margin and asset turnover lines.
- Optionally add Total Assets — the period-end asset base. This completes asset turnover and the equity multiplier (leverage).
- Read the result card. The highlighted ROE is the headline number; below it, the three DuPont components and the cross-check DuPont ROE show where the return is really coming from.
If you leave Revenue and Total Assets blank, the calculator still returns ROE directly, but the decomposition lines will be empty.
The ROE Formula
The core formula is straightforward:
ROE = Net Income / Shareholders' Equity
Express the result as a percentage. A company that earned $50,000 on $500,000 of equity has an ROE of 10%.
The DuPont identity expands that single ratio into three multiplied parts:
ROE = (Net Income / Revenue) × (Revenue / Assets) × (Assets / Equity)
Reading each piece:
- Net Profit Margin = Net Income / Revenue — how much of every sales dollar survives as profit. A high margin signals pricing power, brand strength, or a differentiated product.
- Asset Turnover = Revenue / Assets — how much sales the company generates from its asset base. A high ratio means the assets are working hard; retailers and manufacturers typically run on high turnover.
- Equity Multiplier = Assets / Equity — the leverage. A multiplier of 2.0 means the company finances half its assets with debt. This is the component that can inflate ROE without improving operating performance.
When you multiply the three fractions, revenue cancels and assets cancel, leaving net income over equity — which is exactly why DuPont ROE must equal the direct ROE. The calculator shows both side by side so you can confirm they tie out.
What a Good ROE Looks Like
There is no universal number. A reasonable benchmark is an ROE of 15% or higher sustained over a decade, but context is everything:
- Technology and software companies can post 25–40% ROE with almost no tangible asset base and high gross margins.
- Utilities and banks are capital-intensive and leveraged, so a 10–12% ROE is considered solid.
- Cyclical manufacturers may swing from 20% in boom years to negative in recessions.
Compare ROE within an industry, not across sectors. A 12% ROE at a regulated utility is excellent; the same 12% at a software company is a red flag.
Also watch the leverage component. If the equity multiplier is above 3.0 and margins are thin, the high ROE may be financed by debt rather than earned by the business. In a downturn, that leverage cuts both ways.
Examples
Example 1 — A profitable retailer. Net income is $50,000 and shareholders' equity is $500,000. ROE = 50,000 / 500,000 = 10.0%. Adding revenue of $1,000,000 and total assets of $2,000,000 reveals net margin of 5.0%, asset turnover of 0.50, and an equity multiplier of 4.0. The DuPont ROE ties out to 10.0%, and the high leverage (4.0×) explains why a 5% margin still produces a double-digit return.
Example 2 — A company losing money. Net income is negative $20,000 against equity of $500,000. ROE = −4.0%. A negative ROE means the business is eroding shareholder value rather than creating it. It is not automatically a buy signal just because the stock looks cheap; the loss has to reverse first.
Example 3 — A large-cap efficient operator. Net income of $5,000,000 on equity of $50,000,000 gives ROE of 10.0% on a much bigger base. The engine handles magnitudes of $1,000,000 and above without any precision loss, which is important for screening mega-cap stocks.
Example 4 — Full DuPont tie-out. Net income $100,000, revenue $1,000,000, total assets $2,000,000, equity $1,000,000. Net margin = 10.0%, asset turnover = 0.50, equity multiplier = 2.0. Multiplying gives 0.10 × 0.50 × 2.0 = 0.10 = 10.0%, matching the direct ROE of $100,000 / $1,000,000.
FAQ
What is a good ROE?
A sustained ROE of 15% or higher is generally considered strong, but the benchmark varies sharply by industry. Software companies routinely post 25–40%, while regulated utilities are happy with 10–12%. Always compare a company's ROE to its sector peers and its own five-to-ten-year average.
How is ROE calculated?
ROE equals net income divided by shareholders' equity, expressed as a percentage. For example, net income of $50,000 against shareholders' equity of $500,000 gives an ROE of 10%. Some analysts use average equity (beginning plus ending divided by two) to smooth out mid-period changes.
What is the DuPont analysis?
DuPont decomposition breaks ROE into three multiplied parts: net profit margin (net income / revenue), asset turnover (revenue / assets), and the equity multiplier (assets / equity). It reveals whether a high ROE comes from pricing power, asset efficiency, or financial leverage — three very different business models that can produce the same headline number.
Why would a company have a negative ROE?
A negative ROE occurs when net income is negative — the company posted a net loss. It means the business is currently destroying shareholder value rather than creating it. Growth-stage companies and cyclical businesses often show negative ROE early on; investors must judge whether the losses will turn into future profits.
Is a higher ROE always better?
Not always. A very high ROE can be inflated by excessive debt (a large equity multiplier) or by a shrinking equity base due to buybacks. Always check the DuPont components: if the equity multiplier is above 3.0 and margins are thin, the high return is leveraged risk, not operating strength.
What is the difference between ROE and ROA?
Return on equity (ROE) divides profit by shareholders' equity, while return on assets (ROA) divides profit by total assets. ROA is measured before the impact of debt financing, so it isolates operating performance; ROA plus leverage equals ROE. A company can boost ROE by borrowing, but that does not change ROA.
Disclaimer
This ROE calculator is provided for informational purposes only and does not constitute investment, financial, accounting, or tax advice. Results are based on the inputs you enter and the standard ROE and DuPont formulas; actual figures from financial statements may use average equity, comprehensive income, or adjusted profit figures that differ from simple point-in-time inputs. Past ROE levels do not guarantee future performance. Always review a company's full 10-K or annual report and consult a qualified financial professional before making investment decisions.