Return on Equity (ROE) Calculator
Return on Equity (ROE) Calculator: Measure Shareholder Profitability
If you’re an investor or business owner, knowing how effectively a company generates profits from its equity is crucial. Return on Equity (ROE) is a key financial metric that shows how much profit a company generates for every rupee invested by its shareholders.
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Our ROE Calculator makes it simple to calculate this ratio instantly and interpret the results.
What is Return on Equity?
Return on Equity (ROE) is a measure of profitability relative to shareholders’ equity. It helps investors understand how efficiently a company uses the money invested by its shareholders to generate profits.
ROE Formula: ROE (%)=Net IncomeShareholders’ Equity×100\text{ROE (\%)} = \frac{\text{Net Income}}{\text{Shareholders’ Equity}} \times 100ROE (%)=Shareholders’ EquityNet Income×100
- Net Income: The company’s profit after all expenses, taxes, and interest.
- Shareholders’ Equity: Total equity invested by shareholders in the company.
A higher ROE indicates better efficiency in generating profits from equity investments.
How to Use the ROE Calculator
- Enter the Net Income in ₹.
- Enter the Shareholders’ Equity in ₹.
- Click Calculate.
The calculator displays:
- ROE (%)
- A color-coded indicator to help interpret the result:
| ROE (%) | Interpretation | Indicator |
|---|---|---|
| ≥ 15 | Strong: High returns for shareholders | ✅ Green |
| 8 – 14 | Moderate: Average shareholder returns | ⚠️ Orange |
| < 8 | Low: Poor returns for shareholders | ❌ Red |
Example:
- Net Income = ₹12,00,000
- Shareholders’ Equity = ₹80,00,000
ROE=12,00,00080,00,000×100=15%ROE = \frac{12,00,000}{80,00,000} \times 100 = 15\%ROE=80,00,00012,00,000×100=15%
✅ Strong: The company generates excellent returns for investors.
Why ROE Matters
- For Investors: ROE helps determine how effectively a company uses equity to generate profits.
- For Business Owners: It shows how well shareholder capital is being deployed to create value.
- For Analysts: ROE allows for comparison between companies of different sizes and industries.
A consistently high ROE is a sign of a profitable, well-managed company that rewards shareholders.
Tips for Interpreting ROE
- Compare ROE within the same industry, as equity intensity varies by sector.
- High ROE in an asset-light industry (like software) is common, while in asset-heavy industries (like manufacturing), it may be lower.
- Declining ROE over time can indicate inefficiency or operational challenges.
Key Takeaways
- ROE measures profitability relative to shareholders’ equity.
- High ROE = efficient use of equity, strong returns.
- Low ROE = poor use of equity or low profitability.
- Use ROE along with other metrics like ROA and Profit Margins for a complete financial picture.
Try the ROE Calculator Now
Use our Return on Equity Calculator to quickly assess any company’s shareholder profitability. Make informed investment decisions by understanding how effectively a company uses equity to generate profits.
