ROE Calculator
Return on equity and return on assets from the income statement and balance sheet, with the three-factor DuPont breakdown into margin, asset turnover and leverage.
Result
Return on equity: 36.84%
Ratios of the figures you enter for one year. No healthy ROE is given, because it depends on the industry and the debt behind it.
- Return on assets
- 15.56%
- Profit margin
- 29.17%
- Asset turnover
- 0.53
- Equity multiplier
- 2.37
- Assets used
- $225,000.00
- Equity used
- $95,000.00
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Results are arithmetic estimates based on the assumptions you enter, not accounting, tax, investment or lending advice. Forecasts can be wrong and important decisions should be checked with a qualified adviser. Read the full disclaimer
How to use the ROE Calculator
- Enter net income and revenue for the year.
- Enter total assets and shareholders' equity at the end of the year, and at the start if you have them, so the page can average the two.
- Read return on equity and return on assets, and the DuPont factors that multiply to ROE.
The formulas
ROE = net income ÷ average shareholders' equityROA = net income ÷ average total assetsprofit margin = net income ÷ revenueasset turnover = revenue ÷ average total assetsequity multiplier = average total assets ÷ average shareholders' equityROE = profit margin × asset turnover × equity multiplierThe last line is an identity: revenue and assets cancel, leaving net income over equity. The page computes both ways, and they agree.
Preferred shares
Some textbooks subtract preferred dividends from net income before dividing by common equity, to get the return to common shareholders. This page uses net income and total equity throughout, so the DuPont factors multiply back to the same ROE. If the company has preferred shares, the return to common shareholders is somewhat different.
What the diagram shows
The three DuPont factors as bars: profit margin, asset turnover and the equity multiplier. A long multiplier bar means more of the return comes from borrowing.
With your numbers
- ROA = $35,000.00 ÷ $225,000.00 = 15.56%
- ROE = $35,000.00 ÷ $95,000.00 = 36.84%
- DuPont: 29.17% margin × 0.5333 turnover × 2.3684 multiplier = 36.84%
Quick reference
Ratios of the figures you enter for one year. No healthy ROE is given, because it depends on the industry and the debt behind it.
| Example | Return on equity |
|---|---|
| 35,000 on 120,000 sales, 225,000 assets, 95,000 equity | 36.84% |
| Same, from opening and closing balances | 36.84% |
| A loss of 20,000 | -8% |
| Heavily borrowed: equity a tenth of assets | 30% |
| No debt: equity equals assets | 3% |
| Negative equity |
Common questions about the ROE Calculator
- Why use average assets and equity?
- Net income is earned across the whole year, while a balance sheet is a snapshot on one day. Averaging the opening and closing balances matches the two better, especially when the business grew or raised money during the year. Enter only the closing figures and the page uses those.
- What does the DuPont breakdown show?
- That ROE is profit margin × asset turnover × equity multiplier. Two businesses with the same ROE can get there differently: one by earning a high margin, one by selling a lot from few assets, one by financing its assets mostly with debt. The last is the one to look at twice, because borrowing raises ROE and risk together.
- What is a good ROE?
- This page does not give one. Returns differ by industry, and a high ROE produced by debt is not the same as one produced by margin. Compare with the company's own history and look at how the factors changed.
- Why is ROE blank when equity is negative?
- A business whose liabilities exceed its assets has negative equity, and dividing a profit by it gives a negative ROE that would read as a loss. The ratio has no meaning there, so the page shows return on assets instead.