Return on Equity Calculator

How to use the Return on Equity Calculator

1. 1Enter net income, equity at start and end, revenue and assets.
2. 2Pick the units or options from the menus if the return on equity tool offers them.
3. 3Read the return on equity in the large result box.
4. 4Look at the extra rows for related figures.
5. 5Press Copy result to keep the answer.

When you need the return on equity

Investors compare ROE across firms, and managers use the DuPont split to see whether margin, efficiency or debt drives the return.

A high ROE can come from high profit margin, from using assets well or from heavy borrowing. The DuPont split shows which, and a high figure caused only by debt carries more risk.

How the return on equity is worked out

ROE = net income ÷ average equity. DuPont: ROE = net profit margin × asset turnover × equity multiplier. Net income of 120,000 on equity that grew from 800,000 to 1,000,000 gives average equity of 900,000 and ROE of 13.3%. With revenue of 2,000,000 and assets of 3,000,000, the margin is 6%, turnover is 0.67 and the multiplier is 3.

Every answer on this page comes from that one rule, so you can check any result by hand with a calculator. The figures shown underneath, such as other units, are conversions of the same answer.

• Average equity
• DuPont breakdown
• Optional inputs

Mistakes to avoid with return on equity

Use the same period for income and equity. A tiny or negative equity base makes ROE look huge or meaningless. One-off gains in net income can distort a single year.

On phone and computer

On a phone, type into the boxes one after another and read the return on equity underneath; Copy result puts it on the clipboard for a message or a note. On a computer the inputs sit on the left and the answer on the right, so you can change one figure and watch the return on equity move. The return on equity calculator works the same on both.

Checking your return on equity by hand

A good habit is to test the return on equity calculator with a case you already know. Net income of 120,000 on equity that grew from 800,000 to 1,000,000 gives average equity of 900,000 and ROE of 13.3%. With revenue of 2,000,000 and assets of 3,000,000, the margin is 6%, turnover is 0.67 and the multiplier is 3.

If your own figures give a surprising answer, repeat the working yourself: ROE = net income ÷ average equity. DuPont: ROE = net profit margin × asset turnover × equity multiplier. Small differences usually come from rounding, from mixing units, or from a typing slip in one of the inputs. ROE shows profit on shareholders' money, and other ratios fill in the picture. Check borrowing with the Debt to Equity Calculator, judge an investment with the ROI Calculator, and see short-term cover with the Current Ratio Calculator.

Features

• Match periods
• Check the equity base
• One-off gains distort ROE
• Clear messages when the return on equity inputs make no sense
• Copy the result with one tap
• Private: nothing is uploaded

Frequently asked questions