Return on Equity Calculator
Calculate ROE to measure how efficiently a company turns shareholders' equity into profit. This calculator also breaks ROE down using the DuPont model so you can see whether profitability, efficiency, or leverage is driving the returns.
Return on equity (ROE) = net income / shareholders' equity x 100. A company with $500,000 in net income and $2,000,000 in equity has a 25% ROE, meaning it generates 25 cents of profit for every dollar of equity.
The DuPont analysis breaks ROE into three components: profit margin (how much profit per dollar of sales), asset turnover (how efficiently assets generate revenue), and the equity multiplier (how much leverage the company uses). The formula is: ROE = profit margin x asset turnover x equity multiplier. This decomposition reveals whether high ROE comes from strong margins, efficient asset use, or heavy borrowing.
For example, a bank might have a thin 15% profit margin but an equity multiplier of 10x due to heavy leverage, producing a solid ROE. A software company might have a 30% profit margin with low leverage. Both can achieve the same ROE through completely different strategies. The DuPont breakdown helps investors understand the quality and sustainability of returns.