What is my ROE?
Enter net income and the stockholders' equity from this year's and last year's balance sheets. The calculator takes off any preferred dividends and divides by the average equity.
- Return on equity (ROE)
- 31.58%
Net income of $35,000.00, less any preferred dividends, on average equity of $95,000.00 gives a return on equity of 31.58%.
- Earnings to common stockholders
- $30,000.00
- Average equity
- $95,000.00
Return on equity (ROE): 31.58%. Net income of $35,000.00, less any preferred dividends, on average equity of $95,000.00 gives a return on equity of 31.58%.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes return on equity (ROE): net income minus preferred dividends, divided by average stockholders’ equity, as a percent.
Example with the default inputs (Net income $35,000.00, Preferred dividends $5,000.00, Equity at the start of the year $90,000.00, Equity at the end of the year $100,000.00): Net income of $35,000.00, less any preferred dividends, on average equity of $95,000.00 gives a return on equity of 31.58%.
Method: Earnings = net income − preferred dividends. Average equity = (beginning equity + ending equity) ÷ 2 (ending equity alone when no beginning is given). ROE = earnings ÷ average equity × 100.
- Net income and preferred dividends cover the same year as the two balance sheets.
- Equity is total stockholders’ equity and must be more than $0.
- Arithmetic is exact on the typed decimals; ROE shows to 2 decimals, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Net income $35,000.00, Preferred dividends $5,000.00, Equity at the start of the year $90,000.00, Equity at the end of the year $100,000.00 gives Return on equity (ROE) 31.578947%, Earnings to common stockholders $30,000.00, Average equity $95,000.00.Source: OpenStax, Principles of Finance, 6.6 Profitability Ratios and the DuPont Method (ROE = net income ÷ average stockholder equity; Clear Lake Sporting Goods). https://openstax.org/books/principles-finance/pages/6-6-profitability-ratios-and-the-dupont-method: (35,000 − 5,000) ÷ ((90,000 + 100,000) ÷ 2) = 0.32 (rounded)
- Net income $35,000.00, Equity at the start of the year $90,000.00, Equity at the end of the year $100,000.00 gives Return on equity (ROE) 36.842105%.Source: OpenStax, Principles of Finance, 6.6 Profitability Ratios and the DuPont Method (ROE = net income ÷ average stockholder equity; Clear Lake Sporting Goods). https://openstax.org/books/principles-finance/pages/6-6-profitability-ratios-and-the-dupont-method
- Net income $35,000.00, Equity at the end of the year $100,000.00 gives Return on equity (ROE) 35%, Average equity $100,000.00.
- Net income -$12,500.00, Equity at the start of the year $240,000.00, Equity at the end of the year $260,000.00 gives Return on equity (ROE) -5%.
How it works
- Earnings to common stockholders = net income − preferred dividends
- Average equity = (equity at the start of the year + equity at the end of the year) ÷ 2
- ROE = earnings to common stockholders ÷ average equity × 100
Rules:
- Net income may be negative (a loss). Preferred dividends are $0 or more; an empty box counts as $0.
- Both equity amounts must be more than $0. If you leave the starting equity empty, the average equity is the ending equity alone.
- Each amount is at most $1 quadrillion in size. A result too large or too small to show as a number gives no answer.
- The arithmetic is exact on the decimals you type. ROE shows to 2 decimals and money to the cent, with halves rounded up (away from 0).
Assumptions
- Net income and preferred dividends cover the same year that the two balance sheets start and end.
- Equity is total stockholders' equity from the balance sheet.
Worked examples by hand
Clear Lake Sporting Goods. Net income $35,000, preferred dividends $5,000, equity $90,000 at the start and $100,000 at the end. Earnings = 35,000 − 5,000 = $30,000. Average equity = (90,000 + 100,000) ÷ 2 = $95,000. ROE = 30,000 ÷ 95,000 × 100 = 31.58% (OpenStax rounds it to 0.32).
No preferred stock. The same company without preferred dividends: 35,000 ÷ 95,000 × 100 = 36.84%.
Ending equity only. Net income $35,000 and ending equity $100,000: 35,000 ÷ 100,000 × 100 = 35%.
A net loss. Net income −$12,500, equity $240,000 at the start and $260,000 at the end. Average equity = $250,000. ROE = −12,500 ÷ 250,000 × 100 = −5%.
Other questions people ask
What is ROE?
Return on equity (ROE) shows how much profit a company earns for each dollar of its owners' equity. Equity is the stockholders' investment plus the earnings the company has kept. An ROE of 15% means $15 of profit a year for every $100 of equity.
How do I calculate ROE?
Take net income, subtract preferred dividends, and divide by the average stockholders' equity for the year. Multiply by 100 for a percent. Clear Lake Sporting Goods earned $35,000, paid $5,000 of preferred dividends, and had equity of $90,000 and $100,000, so its ROE was 30,000 ÷ 95,000 = 31.58%.
Why use average equity?
Net income is earned over the whole year, but equity is a balance on one day. The average of the starting and ending balances matches the two better. If you only have one balance sheet, leave the starting equity empty and the calculator uses the ending equity.
Why subtract preferred dividends?
Preferred dividends go to preferred stockholders before the common stockholders get anything. Taking them off leaves the earnings that belong to common stockholders. If the company has no preferred stock, leave the box empty.
What is a good ROE?
It depends on the industry. Compare a company with its own past years and with similar companies. A high ROE can also come from a lot of debt, which shrinks equity, so check the debt to equity ratio too.
Can ROE be negative?
Yes. A net loss gives a negative ROE. A net loss of $12,500 on average equity of $250,000 is an ROE of −5%. This calculator needs equity above $0, because ROE on negative equity has no clear meaning.