ROE Calculator
Return on Equity (Return on Equity (ROE)) Calculator
Calculate return on equity to measure how efficiently a company generates profits from shareholder equity. Includes DuPont decomposition analysis to break ROE into its core components: profit margin, asset turnover, and financial leverage.
Financial Data
Results
INSTRUCTIONS
How to Use This Calculator
1. Enter Net Income
Input the company's net income (after-tax profit) from its income statement. This represents the bottom-line earnings.
2. Enter Equity
Input total shareholder equity from the balance sheet. This is total assets minus total liabilities.
3. Add DuPont Data
Optionally enter revenue and total assets to see the three-part DuPont decomposition of ROE.
4. Analyze ROE
Review ROE percentage and DuPont components. Identify whether returns are driven by margins, efficiency, or leverage.
EDUCATION
Understanding Return on Equity
Return on equity measures how effectively a company uses shareholder capital to generate profits. It is one of the most widely used metrics for evaluating management performance and comparing profitability across companies and industries. A higher ROE generally indicates more efficient use of equity capital.
The basic formula is: ROE = Net Income / Shareholder Equity x 100. The DuPont analysis breaks this into three components: ROE = Profit Margin x Asset Turnover x Equity Multiplier. This decomposition reveals whether a high ROE comes from strong margins, efficient asset usage, or heavy financial leverage, each of which carries different risk implications.
For example, a company with $500,000 in net income and $2,500,000 in shareholder equity has an ROE of 20%. Using DuPont analysis with $5,000,000 revenue and $4,000,000 in total assets, we see a 10% profit margin, 1.25x asset turnover, and 1.6x equity multiplier. The product 0.10 x 1.25 x 1.6 = 0.20 or 20% confirms the ROE and shows which drivers are strongest.
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