ROE measures how effectively management uses investors’ money. Warren Buffett looks for companies with consistently high ROE (15%+) achieved without excessive debt, which the DuPont analysis helps check.
How to use the Return on Equity Calculator
- Net income
- Shareholders’ equity at the start of the year
- Shareholders’ equity at the end of the year
- Total assets
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter net income, shareholders’ equity at the start and end of the year (or the same figure twice) and total assets.
Inputs explained
| Field | What to enter |
|---|---|
| Net income | Amount in your currency |
| Shareholders’ equity at the start of the year | Amount in your currency |
| Shareholders’ equity at the end of the year | Amount in your currency |
| Total assets | Amount in your currency |
What each result means
- Average equity = ([Shareholders’ equity at the start of the year] + [Shareholders’ equity at the end of the year])÷2
- Return on equity (ROE) = [Net income]÷[Average equity]×100
- Return on assets (ROA) = [Net income]÷[Total assets]×100
- Equity multiplier = [Total assets]÷[Average equity]
Example values
How the main result changes when Net income changes and everything else stays at the example values above:
| Net income | Return on equity (ROE) (%) |
|---|---|
| 6,000,000 | 7.5 |
| 9,000,000 | 11.25 |
| 12,000,000 | 15 |
| 15,000,000 | 18.75 |
| 18,000,000 | 22.5 |
| 24,000,000 | 30 |
Formula
ROE = net income ÷ shareholders' equity × 100
Average equity = (opening + closing) ÷ 2
ROA = net income ÷ total assets; equity multiplier = assets ÷ equity
Worked example
Inputs: Net income: $12,000,000; Shareholders' equity at the start of the year: $75,000,000; Shareholders' equity at the end of the year: $85,000,000; Total assets: $200,000,000.
Results: Average equity = $80,000,000.00; Return on equity (ROE) = 15 %; Return on assets (ROA) = 6 %; Equity multiplier = 2.5 ×.
Frequently asked questions
What is a good ROE?
15–20% is generally considered good; it varies by industry.
Can ROE be too high?
Very high ROE may come from heavy debt or very low equity.
Why use average equity?
It matches profit earned during the year with the equity used over the year.
Sources
Guides on this topic
- How to Calculate ROI: Formula, Annualized ROI and Real Examples: The ROI formula in one line, how to annualize it so different holding periods compare fairly, and worked marketing and rental property examples.