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Return on Equity (ROE) Calculator

Calculate the Return on Equity (ROE) of a company to measure shareholder profit efficiency.

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Calculation Parameters

Specify your inputs below.

Calculated Result

Return on Equity (ROE) 14.00%
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Expert Tip

An ROE of 15-20% is generally considered strong, showing efficiency in compounding reinvested equity capital.

How this Calculator Works

This calculator computes Return on Equity (ROE), which measures how efficiently a company uses investments from shareholders to generate net profits. It shows how much profit is generated per dollar of equity capital. Investors use it to judge corporate management.

Formula & Methodology

ROE = (Net Income / Shareholder Equity) * 100 - Net Income is the company's net profit after tax deductions. - Shareholder Equity is assets minus total liabilities.

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

A company reports a net income of $150,000 and total shareholder equity of $1,000,000. 1. Divide net income by shareholder equity: $150,000 / $1,000,000 = 0.15. 2. Multiply by 100 to get a percentage: 0.15 * 100 = 15%. Result: The Return on Equity (ROE) is 15%.

Related Calculators

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ROIC Calculator

Compute Return on Invested Capital (ROIC) to evaluate how efficiently a company allocates capital to profitable investments.

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Return on Assets (ROA) Calculator

Compute Return on Assets (ROA) to evaluate company asset efficiency at generating profits.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This equity research and valuation calculator evaluates corporate fundamentals, stock price multiples, cost of capital, dividend discount models, and shareholder return metrics based on SEC financial reporting and Wall Street equity analysis standards.

Variable Glossary

Input

Equity Inputs

Share price, earnings per share (EPS), dividend amount, book value, debt/equity ratio, or systematic beta coefficient.

Parameter

Valuation Output

Price-to-Earnings (P/E), EV/EBITDA multiple, Intrinsic Value ($), WACC %, or Return on Equity (ROE %).

How to Calculate Step-by-Step

1

Step 1

Input current stock price, shares outstanding, or balance sheet / income statement numbers.

2

Step 2

Enter expected growth rate, cost of equity, or market risk premium assumptions.

3

Step 3

Review calculated valuation multiples, margin of safety comparison, or required rate of return.

FAQ

What is WACC and why is it crucial for equity valuation?
Weighted Average Cost of Capital (WACC) represents a company's required average return on debt and equity capital. It is used as the hurdle rate to discount future cash flows in DCF valuation models.
How does stock Beta measure systematic risk?
A stock beta of 1.0 means price volatility matches the broader market index. Beta > 1.0 indicates higher volatility, while Beta < 1.0 reflects lower systematic volatility.
Should valuation multiples be evaluated in isolation?
No. Valuation ratios (P/E, EV/EBITDA, P/B) should always be benchmarked against industry peer groups, historical trading averages, and expected earnings growth (PEG ratio).