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Return on Equity (ROE) formula calculator
Description
Discover a company's profitability with our Return on Equity (ROE) calculator. ROE is a key financial ratio that measures how effectively a company utilizes shareholders' equity to generate profits. Easily calculate ROE by dividing a company's net income by its shareholders' equity. This insightful metric helps investors and analysts gauge a company's financial performance and its ability to deliver returns to shareholders. Make informed investment decisions with our userfriendly ROE calculator, and gain valuable insights into a company's financial health and management efficiency.
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Useful links
 PricetoEarnings (P/E) calculator
 Net profit margin formula calculator
 Earnings before interest and taxes (EBIT) calculator
 Return on investment (ROI) calculator
 Compound interest calculator
Return on Equity (ROE) Formula
Explain the Formula
Return on Equity (ROE) is a vital financial metric that assesses a company's profitability and its ability to generate returns for shareholders. The ROE formula is calculated as follows:
ROE = Net Income / Shareholders' Equity

Net Income: This represents a company's total profit after all expenses, including operating costs, taxes, interest, and other deductions, have been accounted for. You can find this figure on the company's income statement.

Shareholders' Equity: Shareholders' equity is the residual interest in a company's assets after deducting its liabilities. It's sometimes called owners' equity or stockholders' equity. You can locate this value on the company's balance sheet and calculate it as follows:
Shareholders' Equity = Total Assets  Total Liabilities
How to Use ROE with Example
Understanding how to use ROE with an example can be quite illustrative. Let's say you want to evaluate Company XYZ's ROE. You find the following financial data:
 Net Income: $500000
 Shareholders' Equity: $2000000
Using the formula:
ROE = $500000 / $2000000 = 0.25 or 25%
This means that Company XYZ generated a return of 25% on its shareholders' equity.
How to Use the ROE Calculator
To quickly calculate ROE, use our userfriendly ROE calculator. Simply input the company's net income and shareholders' equity, and it will provide you with the ROE percentage. It's a convenient tool for investors and analysts to assess a company's financial health.
Frequently Asked Questions (FAQ)
Q1: What is a good ROE?
A "good" ROE varies by industry, but generally, an ROE higher than the industry average may be considered good. It's essential to compare ROE with peers and analyze other financial metrics to make a comprehensive assessment.
Q2: What are the limitations of ROE?
ROE has limitations. It doesn't account for debt levels, and companies can artificially boost ROE through stock buybacks. It's crucial to consider these factors when interpreting ROE.
Q3: Is a higher ROE always better?
Not necessarily. A high ROE is generally positive, but it should be evaluated alongside other financial metrics and the company's risk profile. Very high ROE can sometimes signal excessive risktaking.
Conclusion
Return on Equity (ROE) is a powerful financial metric for evaluating a company's profitability and the efficiency of its equity utilization. It's a valuable tool for investors and analysts to assess a company's financial performance. By using the ROE formula and our handy calculator, you can gain insights into a company's financial health and make informed investment decisions. Keep in mind that ROE is most useful when considered in the context of industry standards and in conjunction with other financial indicators.