# What is my ROE?

Computes return on equity (ROE): net income minus preferred dividends, divided by average stockholders’ equity, as a percent.

- Page: https://www.acalculator.org/finance/roe-calculator
- JSON spec: https://www.acalculator.org/finance/roe-calculator.json
- Version: 2a759b6c918c

## Default answer

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%.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| ni | Net income | Profit for the year after every expense, interest and tax. Negative for a loss. |
| pref | Preferred dividends | Dividends paid to preferred stockholders for the year, taken off net income. Optional. |
| beq | Equity at the start of the year | Total stockholders’ equity on last year’s balance sheet. Leave empty to use the ending equity alone. |
| eeq | Equity at the end of the year | Total stockholders’ equity on this year’s balance sheet. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| roe | Return on equity (ROE) | (Net income − preferred dividends) ÷ average equity × 100. |
| earnings | Earnings to common stockholders | Net income minus preferred dividends. |
| average | Average equity | (Beginning equity + ending equity) ÷ 2, or the ending equity when no beginning is given. |

## 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.

## Assumptions

- 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

1. ni = $35,000.00, pref = $5,000.00, beq = $90,000.00, eeq = $100,000.00 gives roe = 31.578947%, earnings = $30,000.00, average = $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).
2. ni = $35,000.00, beq = $90,000.00, eeq = $100,000.00 gives 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.
3. ni = $35,000.00, eeq = $100,000.00 gives roe = 35%, average = $100,000.00.
4. ni = -$12,500.00, beq = $240,000.00, eeq = $260,000.00 gives roe = -5%.

## FAQ

### 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.

## Sources

- OpenStax, Principles of Finance, 6.6 Profitability Ratios and the DuPont Method: return on equity = net income ÷ average stockholder equity, average = (beginning + ending) ÷ 2, and the Clear Lake Sporting Goods example with $5,000 of preferred dividends taken off net income (0.32, rounded). https://openstax.org/books/principles-finance/pages/6-6-profitability-ratios-and-the-dupont-method (retrieved 2026-10-18)
- U.S. Securities and Exchange Commission, Beginners' Guide to Financial Statements: shareholders' equity is what the owners invested plus or minus the company's earnings or losses since inception. https://www.sec.gov/about/reports-publications/beginners-guide-financial-statements (retrieved 2026-10-18)