Return on Equity (ROE) Calculator

What Is Return on Equity? Return on Equity (ROE) measures how efficiently a company uses shareholders’ money to generate profit. It is expressed as a percentage and is one of the most widely used metrics in fundamental stock analysis.

Simple Formula ROE = (Net Income / Average Shareholders’ Equity) × 100

Average Equity = (Beginning Equity + Ending Equity) / 2

Using average equity (rather than ending equity alone) gives a more accurate picture because equity changes throughout the year.

DuPont Decomposition The DuPont analysis (developed by the DuPont Corporation in the 1920s) breaks ROE into three drivers:

ROE = Net Profit Margin × Asset Turnover × Equity Multiplier

Where:

• Net Profit Margin = Net Income / Revenue (profitability)
• Asset Turnover = Revenue / Total Assets (efficiency)
• Equity Multiplier = Total Assets / Shareholders’ Equity (financial leverage)

This decomposition reveals why ROE is high or low:

• High margin: company is very profitable per dollar of sales
• High asset turnover: company uses assets very efficiently
• High equity multiplier: company is using a lot of debt (leverage)

ROE Benchmarks

• Below 10%: Below average: poor use of shareholder capital
• 10–15%: Average for most industries
• 15–20%: Good: above average performance
• Above 20%: Excellent: strong business or high leverage
• S&P 500 historical average: approximately 14–15%

ROE Limitations High ROE can be misleading when achieved through excessive debt (high equity multiplier). A company that borrows heavily and buys back stock can mathematically inflate ROE while increasing financial risk. Always examine ROE alongside the debt-to-equity ratio.

Which Industries Have High ROE? Technology, financial services, and consumer staples often show high ROE. Capital-intensive industries (utilities, mining, airlines) typically show lower ROE.