Return on Equity (ROE) Calculator
Return on Equity (ROE)
Measure management efficiency in generating profits from shareholder equity.
Return on Equity (ROE)
20.00%
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Return on Equity (ROE) Percentage Formula
Measures company profitability and efficiency at generating net income relative to total book equity value.
Worked Example: Net Income ₹20 Crore with Shareholders' Equity of ₹100 Crore
Return on Equity: Evaluating shareholder capital compound efficiency
Karan was looking for high-quality businesses. He calculated the Return on Equity (ROE) of a utility firm generating ₹20 Crores net income on ₹100 Crores equity.
The ROE was 20.0%. This high return rate indicated the company was highly efficient at compounding shareholder equity capital.
ROE measures net profitability generated relative to the total book value of shareholder equity reserves.
Look for companies with a consistently high ROE (>15-20%) that is driven by high profit margins rather than excessive financial leverage.
Frequently Asked Questions
What is Return on Equity (ROE)?
ROE is a measure of financial performance calculated by dividing net income by shareholders' equity. It shows how effectively management is using investors' money to generate profit.
Can a company have an artificially high ROE?
Yes. Because ROE is based on equity, a company that takes on massive amounts of debt (which shrinks the equity base) will show an artificially inflated ROE. Always check debt levels alongside ROE.
What is a good ROE percentage?
Generally, an ROE of 15% to 20% is considered good, but this varies heavily by industry. Capital-intensive industries (like utilities) naturally have lower ROEs than software companies.
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