Last updated October 8, 2026 · Report an error
Return on Equity (ROE) measures how efficiently a company turns shareholders' invested capital into profit — a core profitability metric investors use to compare companies within the same industry.
How it works
Enter net income and shareholder equity, and the calculator applies ROE = (Net Income ÷ Shareholder Equity) × 100.
- Enter net income ($).
- Enter shareholder equity ($).
- Click Calculate to see your results.
Examples
A profitable company
A company with $50,000 of net income and $250,000 of shareholder equity has an ROE of 20% — for every dollar of equity invested, it generated 20 cents of profit that year.
Who should use it
- Comparing profitability across similar companies.
- Investment analysis and equity research.
Industry applications
- Investment analysis and equity research
- Corporate finance and performance benchmarking
Advantages
- Simple, widely-used profitability benchmark.
- Easy to calculate from figures already on a company's financial statements.
Limitations
- Can be inflated by heavy debt financing rather than genuine operational efficiency.
Common mistakes to avoid
- Comparing ROE across companies in very different industries without accounting for typical capital intensity differences.
- Treating a high ROE as automatically good without checking whether it's driven by heavy debt rather than genuine profitability.
Best practices
- Compare ROE against similar companies in the same industry, not as an absolute universal benchmark.
- Review ROE alongside debt levels to check whether it's driven by leverage rather than operational performance.
Tips
- If a company's ROE looks unusually high, check its debt-to-equity ratio before assuming it reflects strong underlying performance.
Frequently asked questions
Yes, with no signup and no limit on how many calculations you run.
It varies significantly by industry — capital-light industries (like software) typically show higher ROE than capital-intensive ones (like utilities), so ROE is most meaningful compared against similar companies, not as a single universal benchmark.
Yes — a company can inflate ROE through heavy debt financing (reducing the equity denominator) rather than genuine operational efficiency, so it's worth reviewing alongside debt levels (e.g. a debt-to-equity ratio) rather than in isolation.
ROE measures return relative to shareholder equity specifically; ROA (Return on Assets) measures return relative to ALL assets, including those financed by debt — ROA gives a debt-neutral efficiency picture that ROE alone doesn't.