Calculate your company's Return on Equity (ROE) by entering Net Profit (Earnings After Tax) and Shareholders' Equity. You'll get the ROE percentage — a key profitability ratio showing how efficiently a company generates profit from its equity. A quick benchmark interpretation is included so you know whether your result is strong, average, or below par.
Return on Equity (ROE)
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ROE Interpretation
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Profit per $1 of Equity
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Return on Equity (ROE) is a measure of financial profitability that shows how much profit a company generates from its shareholders' equity. It is expressed as a percentage and is widely used by investors and analysts to assess a company's efficiency in using equity capital.
ROE is calculated using the formula: ROE = (Net Profit / Shareholders' Equity) × 100. For example, if a company earns $34,500 in net profit and has $456,000 in equity, the ROE would be approximately 7.57%.
A ROE of 15–20% or above is generally considered strong and indicates an efficient, profitable company. Values between 10–15% are considered average, while anything below 10% may signal underperformance. However, benchmarks vary significantly by industry.
A 2% ROE is generally considered quite low and suggests the company is not generating strong returns from its equity. Most investors look for ROE values of at least 10–15%, though the acceptable threshold depends on the industry and economic conditions.
When shareholders' equity is negative — which can happen when a company has accumulated losses exceeding its assets — the resulting ROE will also be negative or misleading. In this case, ROE is less useful as a profitability metric and should be interpreted with caution alongside other financial ratios.
ROE measures profitability relative to shareholders' equity only, while ROCE measures profitability relative to all capital employed, including debt. ROCE provides a broader view of capital efficiency, whereas ROE focuses specifically on returns to equity holders.
ROE can be distorted by high levels of debt — a company can boost ROE by taking on more leverage without improving operational efficiency. It also doesn't account for the risk profile of the company, and negative equity can make ROE misleading. Always use ROE alongside other financial metrics for a complete picture.
A consistently high or improving ROE can signal a strong, well-managed company, making it a positive indicator when considering buying options. Conversely, a declining or very low ROE may suggest deteriorating profitability, which could support a bearish outlook. Traders often combine ROE with other metrics like P/E ratio and debt levels for informed decisions.