Return on Equity (ROE) Calculator: Net Income Over Shareholder Equity

A return on equity calculator divides net income by shareholder equity, a fast way to see how much profit a company squeezes out of the money its owners have invested.

How to calculate return on equity

Divide net income by shareholder equity, then multiply by 100 to get a percentage. Net income comes from the income statement, the profit left after every expense, interest payment and tax bill. Shareholder equity comes from the balance sheet: total assets minus total liabilities, or the sum of paid-in capital and retained earnings. A company with 80,000 dollars in net income and 400,000 dollars in shareholder equity has an ROE of 20 percent, meaning it generated 20 cents of profit for every dollar shareholders have tied up in the business.

ROE versus ROA, and why they can tell different stories

Return on assets divides the same net income figure by total assets instead of equity, and the gap between the two numbers usually comes down to debt. A company that borrows heavily can post an eye-catching ROE while its ROA stays fairly flat, because debt shrinks the equity base without shrinking net income by the same amount. Neither ratio is wrong on its own, but reading them side by side gives a clearer picture: a high ROE paired with a low ROA is often a sign that leverage, not operational efficiency, is doing most of the work. Checking both, along with a company's debt-to-equity ratio, keeps you from mistaking a leveraged balance sheet for a genuinely efficient one.

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