Return on Equity Calculator
This calculator computes the Return on Equity (ROE), a core financial metric that shows how effectively a company generates profits from shareholders’ equity. It’s widely used by investors, analysts, and CFOs to evaluate financial performance and return potential.
ROE (Shareholder Profitability) Calculator
Return on Equity Formula
$$\text{ROE} = \left( \frac{\text{Net Income}}{\text{Average Stockholders’ Equity}} \right) \times 100$$
Explanation:
ROE measures how much profit a company generates with the money invested by its shareholders. A higher ROE indicates stronger financial performance and capital efficiency.
Return on Equity is a vital metric for evaluating a company’s ability to generate returns on investment. It’s used for:
- Assessing profitability
- Comparing companies within the same sector
- Monitoring management performance
Example Variables:
- Net Income: $250,000
- Average Equity: $1,000,000
- ROE = (250,000 / 1,000,000) × 100 = 25%
Use Cases:
- Investor due diligence
- Financial performance benchmarking
- Strategic planning and profitability tracking