# Return on Equity Calculator

Calculate return on equity (ROE) and see the DuPont decomposition into profit margin, asset turnover, and equity multiplier.

## What this calculates

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.

## Inputs

- **Net Income** ($) — min 0 — Company's net income (bottom line profit) for the period.
- **Revenue (Sales)** ($) — min 0 — Total revenue for the same period (used for DuPont decomposition).
- **Total Assets** ($) — min 0 — Total assets on the balance sheet.
- **Shareholders' Equity** ($) — min 0 — Total shareholders' equity (assets minus liabilities).

## Outputs

- **Return on Equity (ROE)** — formatted as percentage — Net income as a percentage of shareholders' equity.
- **Profit Margin** — formatted as percentage — Net income / revenue (DuPont component 1).
- **Asset Turnover** — Revenue / total assets (DuPont component 2).
- **Equity Multiplier** — Total assets / shareholders' equity (DuPont component 3).
- **DuPont ROE** — formatted as percentage — Profit margin x asset turnover x equity multiplier (should match ROE).

## Details

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.

## Frequently Asked Questions

**Q: What is a good ROE?**

A: An ROE of 15-20% is generally considered strong for most industries. Consistently high ROE (above 20%) suggests a company has a durable competitive advantage. However, very high ROE can sometimes be driven by excessive debt rather than operational excellence. Always check the DuPont components to understand what is driving the number.

**Q: What is the DuPont analysis?**

A: The DuPont model decomposes ROE into three ratios: profit margin (net income / revenue), asset turnover (revenue / total assets), and equity multiplier (total assets / equity). Multiplying these three together equals ROE. This breakdown helps you identify whether a company's returns come from pricing power, operational efficiency, or financial leverage.

**Q: Can ROE be negative?**

A: Yes, ROE is negative when a company has a net loss. Negative ROE means the company is destroying shareholder value. However, negative ROE can also occur if shareholders' equity is negative (liabilities exceed assets), which can make the math misleading. Always look at the components rather than just the headline number.

---

Source: https://vastcalc.com/calculators/finance/return-on-equity
Category: Finance
Last updated: 2026-04-08