Return on Equity (ROE) Calculator
Calculate and analyze your company's Return on Equity (ROE) over time.
ROE Analysis
Current ROE
20.00%
Historical Average ROE
19.01%
Understanding Return on Equity (ROE)
Return on Equity (ROE) is a key financial metric that measures a company's profitability in relation to its shareholders' equity. It indicates how effectively a company is using its shareholders' investments to generate profits.
How to Calculate ROE
The formula for calculating ROE is:
ROE = (Net Income / Shareholders' Equity) × 100%
Interpreting ROE
- High ROE: Generally, a higher ROE is better, as it indicates that a company is more efficient at generating profits from its equity.
- Industry Comparison: It's important to compare a company's ROE to others in the same industry, as ROE can vary significantly between sectors.
- Sustainable Growth: A consistently high ROE over time often indicates a company with a sustainable competitive advantage.
Limitations of ROE
- Debt Impact: High debt levels can artificially inflate ROE without necessarily improving the company's financial health.
- Short-term Focus: A high ROE might result from short-term strategies that aren't sustainable in the long run.
- Accounting Practices: Different accounting methods can affect ROE calculations, making comparisons between companies less straightforward.