ROE Calculator
Calculate return on equity using net income and average common shareholders’ equity.
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How this calculator works
ROE measures accounting profit relative to the average common equity capital employed during the period.
Formula
Worked example
$12 million of net income on average common equity of $100 million produces a 12% ROE.
How to interpret the result
ROE measures accounting profit relative to the average common equity capital employed during the period.
Assumptions & limitations
Leverage, share repurchases, write-downs and unusually small equity balances can materially distort ROE. Negative or zero average equity does not support conventional interpretation.
Practical context
When this calculator is useful
Return on equity is useful for measuring net income relative to the average common equity supplied or retained for shareholders. It can provide a compact view of accounting profitability on the equity base.
How investors commonly use it
Investors often decompose a high or rising ROE by checking margins, asset efficiency and leverage, and compare it with ROIC to see whether debt or a reduced equity base is influencing the result.
What this metric does not tell you
ROE can be boosted by leverage, aggressive buybacks or unusually low book equity without a corresponding improvement in the underlying business. Negative equity makes conventional interpretation problematic.