ROE Calculator: Return on Equity and Target Earnings

ROE calculator

Calculate return on equity from net income and average common shareholders’ equity. Use amounts for the same reporting period and currency.

The currency selector changes formatting only; it does not convert amounts. ROE is calculated for the period entered and is not annualized.


ROE formula

Return on equity (%) = net income attributable to common shareholders ÷ average common shareholders’ equity × 100.

Average equity = (beginning equity + ending equity) ÷ 2. Match the income period to the beginning and ending balance-sheet dates.

Worked examples

  • Net income of $150,000, beginning equity of $900,000 and ending equity of $1,100,000 produce average equity of $1,000,000 and ROE of 15%.
  • A net loss of $50,000 with the same $1,000,000 average equity produces ROE of −5%.
  • If average equity is $1,000,000 and the target ROE is 12%, the target net income is $120,000. With actual net income of $150,000, income is $30,000 above that target.

How to interpret ROE

ROE compares earnings with shareholders’ equity. A higher value is not automatically better: leverage, share repurchases, unusual gains, or a small equity base can raise the ratio. Compare companies with similar business models and accounting periods. Negative ROE indicates a net loss when average equity is positive.

Limits and assumptions

  • Beginning and ending equity must be zero or positive, and their average must be greater than zero. Negative or zero average equity makes conventional ROE undefined or misleading.
  • Net income may be positive, zero, or negative. Use income attributable to common shareholders and common equity on a consistent basis.
  • The target is optional and ranges from 0% to 1,000%; it is a simple comparison, not a forecast.
  • All monetary amounts must use the same currency and reporting period. Currency selection only formats values; no foreign-exchange conversion is performed.
  • This calculator does not adjust for preferred dividends, minority interests, share buybacks, accounting policy, or one-time items. It is not investment advice.

Related calculators

Compare ROE with asset efficiency using the Return on Assets Calculator, or with operating-capital returns using the ROIC Calculator.