ROE Calculator

Return on equity measures how efficiently a company generates profit from shareholders' equity. It is calculated as net income divided by average shareholders' equity, expressed as a percentage. An ROE of 20% means the company earned $0.20 in profit for every $1 of equity. Warren Buffett has long used sustained high ROE as a key indicator of durable competitive advantage.

ROE = Net Income ÷ Shareholders' Equity × 100. For the most accurate result, use average equity — (beginning equity + ending equity) ÷ 2 — to account for equity changes during the year. For a quick estimate, trailing twelve-month net income divided by the most recent equity figure is common.

The S&P 500 has historically averaged 16–20% ROE. As a general benchmark, sustained ROE above 15% suggests a well-run business; above 20–25% is excellent and may indicate a durable competitive advantage. However, sector context is essential — a 12% ROE is strong for a utility, while a 12% ROE for a software company is below average. Always compare within the sector.

Yes. A company with significant debt can inflate ROE because high leverage reduces the equity denominator. A business financing $900M of assets with $100M of equity and $800M of debt will show a very high ROE even with mediocre operating performance. Always examine ROE alongside the debt-to-equity ratio and return on assets (ROA) to determine whether returns are driven by operations or leverage.

The percentage keeps its arithmetic but loses its sign, so it should not be read as a return. Equity turns negative when cumulative buybacks and dividends exceed cumulative retained earnings — common among long-established companies that have returned capital for decades — and also after large write-downs. Dividing a positive net income by a negative denominator prints a negative ROE, and dividing a loss by it prints a positive one, so the figure reads backwards in both directions: a profitable company can show −70% and a loss-making one +50%. The usual bands cannot be applied, because they read the sign as the result, and the DuPont equity multiplier (Total Assets ÷ Equity) turns negative for the same reason. This calculator reports the figure but withholds the rating and the multiplier when equity is negative. Return on assets and return on invested capital remain readable, since neither divides by book equity.

DuPont analysis breaks ROE into three components: ROE = Net Profit Margin × Asset Turnover × Equity Multiplier (leverage). This reveals whether high ROE comes from strong margins (quality), efficient asset use (operational efficiency), or financial leverage (risk). A company with high ROE driven entirely by leverage is fundamentally different from one with high ROE driven by margins.

Equity Rank includes ROE as a core component in the SAVE profitability score. Stocks with consistently high ROE relative to their sector receive higher profitability scores, which flow into the composite SAVE score. Equity Rank applies sector-adjusted thresholds — a technology company is benchmarked against technology peers, not against utilities.