Calculate return on equity (ROE) from net income and average shareholders' equity. Add revenue and total assets to split ROE with the DuPont formula into profit margin, asset turnover and the equity multiplier, so you can see whether returns come from profitability, efficiency or leverage.
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DuPont analysis (optional)
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Enter your values to see the result.
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How to use the Return on Equity Calculator
Enter net income for the period and pick whether it covers a year, a quarter or a month.
Enter shareholders' equity at the beginning and end of the period (beginning is optional).
Optionally add revenue and total assets to unlock the DuPont analysis.
Read the ROE and see which DuPont driver contributes most.
Return on equity and DuPont formulas
ROE = Net income ÷ Average shareholders' equity × 100
The 3-step DuPont identity breaks the same number into three drivers:
ROE = (Net income ÷ Revenue) × (Revenue ÷ Average assets) × (Average assets ÷ Average equity)
Net profit margin: how much of each sale is kept as profit.
Asset turnover: how much revenue each unit of assets produces.
Equity multiplier: how much of the assets are financed by debt rather than equity (financial leverage).
Example: net income $120,000, equity $750,000 at the start and $850,000 at the end (average $800,000) gives ROE = 15%. With revenue of $1,500,000 and average assets of $1,900,000: margin 8% × turnover 0.789 × multiplier 2.375 = 15%.
Same ROE, different stories
Company
Profit margin
Asset turnover
Equity multiplier
ROE
High-margin brand
20%
0.5×
1.5×
15%
Discount retailer
3%
2.5×
2.0×
15%
Leveraged lender
10%
0.25×
6.0×
15%
All three earn 15% for shareholders, but the third relies on leverage, which makes its return far more sensitive to a drop in earnings. Illustrative figures.
Frequently asked questions
What is the return on equity formula?
ROE = net income ÷ average shareholders' equity × 100. Average equity = (beginning equity + ending equity) ÷ 2. Some sources divide by ending equity only, which gives a slightly different number when equity changes during the year.
What is the DuPont formula for ROE?
The 3-step DuPont formula splits ROE into: net profit margin (net income ÷ revenue) × asset turnover (revenue ÷ average assets) × equity multiplier (average assets ÷ average equity). Multiplying the three gives the same ROE, but shows whether it comes from margins, efficient use of assets or financial leverage.
What is a good ROE?
It depends on the industry and on interest rates. A useful test is whether ROE exceeds the company's cost of equity, the return shareholders could expect elsewhere for similar risk. Compare ROE with peers and over several years rather than against a single number.
Why can a high ROE be misleading?
ROE rises when equity shrinks, so heavy borrowing, large share buybacks or accumulated losses can inflate it. The DuPont breakdown reveals this: a high equity multiplier means leverage, not profitability, is driving the return.
What if equity is negative?
ROE is not meaningful with negative or zero equity: a loss divided by negative equity would show a positive ROE. The calculator asks for positive average equity for that reason.
How do I annualize quarterly ROE?
Multiply quarterly net income by 4 (or monthly by 12) before dividing by average equity. Pick the period in the calculator and it does this for you. For seasonal businesses, using the trailing twelve months of net income is more accurate.
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