Return on Equity (ROE) Calculator
Calculate the Return on Equity (ROE) using net income and shareholder equity.
The Return on Equity (ROE) Calculator is an essential tool for businesses and investors. It helps measure how effectively a company uses its equity to generate profit. ROE indicates financial performance by showing the return earned on shareholders’ investments. This metric is crucial for comparing profitability across companies or industries.
For business owners, it’s a way to assess if equity investments deliver adequate returns. Investors use ROE to evaluate the potential of businesses before committing funds. A higher ROE often means better efficiency and profitability. This tool simplifies calculations, ensuring precision and saving time.
How to Calculate ROE
To calculate ROE:
- Divide the net income by shareholder equity.
- Multiply the result by 100 to get a percentage.
Formula for ROE
Variables in the Formula
| Variable | Description |
|---|---|
| Net Income | Total earnings after expenses and taxes. |
| Shareholder Equity | Total assets minus total liabilities. |
Solved Calculations
Example 1
| Step | Calculation |
|---|---|
| Net Income | $50,000 |
| Shareholder Equity | $200,000 |
| Formula | |
| Step 1: Divide Net Income by Equity | |
| Step 2: Multiply by 100 | |
| ROE | 25% |
Example 2
| Step | Calculation |
|---|---|
| Net Income | $75,000 |
| Shareholder Equity | $300,000 |
| Formula | |
| Step 1: Divide Net Income by Equity | |
| Step 2: Multiply by 100 | |
| ROE | 25% |