Return on Equity (ROE) Calculator
Calculate return on equity and decompose it using the DuPont formula into profit margin, asset turnover, and financial leverage to see what actually drives the return.
Formula & Reference
| Variable | Symbol | Formula | Units |
|---|---|---|---|
| Return on Equity (ROE) Calculator | — | ROE = net income / shareholders' equity; DuPont: margin × turnover × leverage | percent |
Step-by-Step Examples
Net income 450,000, equity 2,500,000, revenue 5,000,000, assets 4,000,000.
- ROE = 450,000 / 2,500,000 = 18.0%
- Net margin = 450,000 / 5,000,000 = 9.0%
- Asset turnover = 5,000,000 / 4,000,000 = 1.25
- Leverage = 4,000,000 / 2,500,000 = 1.60
- Check: 9.0% × 1.25 × 1.60 = 18.0%
Net income 300,000, equity 750,000, revenue 6,000,000, assets 4,500,000.
- ROE = 300,000 / 750,000 = 40.0%
- Net margin = 5.0%, turnover = 1.33
- Leverage = 4,500,000 / 750,000 = 6.0
- Check: 5.0% × 1.33 × 6.0 = 40.0%
- The headline ROE comes almost entirely from leverage
Net income 800,000, equity 4,000,000, revenue 2,000,000, assets 4,800,000.
- ROE = 20.0%
- Net margin = 40.0% — very high
- Asset turnover = 0.42 — capital intensive
- Leverage = 1.20 — conservative
Real-World Applications
Common Mistakes to Avoid
A company can manufacture high ROE purely through debt. The DuPont decomposition exists precisely to expose whether that is what is happening.
Companies with negative or near-zero book equity produce meaningless or wildly inflated ROE figures. Return on assets or ROIC works better there.
Software businesses need little capital and show high ROE; utilities are capital-intensive and show low ROE. Neither figure means much outside its sector.