Calculate return on equity instantly with our free ROE calculator. Understand the ROE formula, run a DuPont analysis, and benchmark against S&P 500 sector averages — all in one place.
15–25%
Good ROE Range
~18%
S&P 500 Median ROE
3
DuPont Components
11
Sectors Benchmarked
ROE Calculator
Enter a company's net income and total shareholders' equity to calculate its return on equity ratio. The return on equity formula is: ROE = (Net Income ÷ Shareholders' Equity) × 100.
The DuPont analysis decomposes return on equity into three fundamental drivers: profit margin, asset turnover, and the equity multiplier. This reveals why a company has a high or low ROE — is it profitability, efficiency, or financial leverage?
Return on equity (ROE) is a financial ratio that measures how effectively a company uses shareholders' equity to generate profits. It tells investors how many dollars of profit a company produces for every dollar of equity capital invested.
The return on equity ratio formula divides a company's net income (from the income statement) by its total shareholders' equity (from the balance sheet). The result, expressed as a percentage, represents the company's profitability relative to the book value of equity.
ROE is one of the most widely used metrics in fundamental analysis because it captures the relationship between profitability and capital efficiency. Warren Buffett, for instance, famously looks for companies that consistently maintain an ROE above 15% as a sign of durable competitive advantage.
The return on stockholders' equity formula is the same calculation — "stockholders' equity" and "shareholders' equity" are interchangeable terms. Both refer to the residual interest in assets after deducting liabilities.
What Is a Good ROE? Interpretation Guide
ROE benchmarks vary by industry, but here's a general framework for evaluating return on equity across sectors:
< 10%
Poor
The company is generating below-average returns on equity. May indicate weak profitability, excessive assets, or an over-leveraged balance sheet working against it.
10% – 15%
Average
Acceptable for capital-intensive industries like utilities or banking. For tech or consumer staples, this range may signal room for improvement.
15% – 25%
Good
Strong return on equity. The company is efficiently converting equity into profit. Most high-quality businesses fall in this range consistently.
> 25%
Excellent
Exceptional profitability. Common among asset-light businesses with strong moats. Verify it's not driven solely by excessive leverage via DuPont analysis.
ROE by S&P 500 Sector (2025 Averages)
Return on equity varies significantly across sectors. Technology companies typically boast the highest ROEs due to asset-light models, while utilities and real estate have lower ROEs because of their capital-intensive nature.
How to Read ROE Trends
A single-year ROE snapshot is useful, but tracking ROE over time reveals the trajectory of a company's profitability. An improving ROE trend suggests growing efficiency or profitability, while a declining ROE trend may signal deteriorating fundamentals or increasing leverage risk.
ROE vs ROA vs ROIC Comparison
Return on equity is just one lens for measuring profitability. Comparing ROE with ROA and ROIC provides a more complete picture of how a company deploys capital.
Metric
Formula
Measures
Best For
Limitation
ROE
Net Income ÷ Shareholders' Equity
Profit per dollar of equity
Comparing equity efficiency
Inflated by high debt
ROA
Net Income ÷ Total Assets
Profit per dollar of assets
Asset-heavy industries
Ignores capital structure
ROIC
NOPAT ÷ Invested Capital
Profit per dollar of total capital
Comparing across capital structures
Requires NOPAT calculation
5 Key Insights About Return on Equity
1
ROE is most useful when compared within the same industry. A 12% ROE is excellent for a bank but mediocre for a software company. Always benchmark against sector peers, not the broad market.
2
High ROE driven by debt is a red flag. If the equity multiplier in DuPont analysis is the primary driver, the company may be taking on excessive risk. Use DuPont decomposition to distinguish genuine profitability from leverage-fueled returns.
3
Consistent ROE above 15% signals a competitive moat. Companies that sustain high ROE over 5–10 years typically possess structural advantages like brand power, network effects, or switching costs that protect margins.
4
Share buybacks can artificially inflate ROE. When companies repurchase shares, shareholders' equity decreases, which mechanically boosts ROE even if net income is flat. Always examine both the numerator and denominator.
5
Negative equity makes ROE meaningless. Companies like McDonald's or Starbucks have negative book equity due to aggressive buybacks. In such cases, ROE is mathematically undefined, and you should rely on ROIC or other metrics instead.
Frequently Asked Questions
What is a good return on equity (ROE)?
A good ROE is generally considered to be 15% to 25%. An ROE above 25% is excellent and suggests the company generates strong profits relative to shareholder equity. An ROE below 10% is considered poor for most industries, though capital-intensive sectors like utilities may naturally have lower ROEs.
How do you calculate return on equity?
Return on equity is calculated by dividing net income by average shareholders' equity, then multiplying by 100 to express it as a percentage. The formula is: ROE = (Net Income / Shareholders' Equity) × 100. You can find net income on the income statement and shareholders' equity on the balance sheet.
What is the DuPont analysis of ROE?
DuPont analysis breaks ROE into three components: Profit Margin (Net Income / Revenue), Asset Turnover (Revenue / Total Assets), and Equity Multiplier (Total Assets / Shareholders' Equity). The formula is ROE = Profit Margin × Asset Turnover × Equity Multiplier. This decomposition reveals whether ROE is driven by profitability, efficiency, or leverage.
What is the difference between ROE, ROA, and ROIC?
ROE measures profit relative to shareholders' equity, ROA measures profit relative to total assets, and ROIC measures profit relative to total invested capital (equity plus debt). ROE can be inflated by high debt levels, while ROIC provides a clearer picture of how efficiently a company uses all capital. ROA is useful for comparing companies with different capital structures.
Can ROE be negative and what does it mean?
Yes, ROE can be negative. A negative ROE typically occurs when a company reports a net loss, meaning it is losing money rather than generating profits. In rare cases, negative ROE can also occur when shareholders' equity is negative due to accumulated losses or excessive debt. A negative ROE is a warning sign that requires further investigation.