# Return on Equity Calculator

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Instructions:
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You can use this Return on Equity Calculator \((ROE)\), by providing the Net Income and the current total equity in the form below:

## Return on Equity Calculator

More about the
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Return on Equity
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so you can better use the results provided by this corporate finance calculator.

The Return on Equity \((ROE)\) is the ratio of net income to total equity. This ratio is a profitability measure, and it indicates how many dollars in net income a firm has for each $1 in total equity.

### How do you compute the Return on Equity (ROE)?

In order to calculate the ROE, we use the following formula:

\[ \text{ROE} = \displaystyle \frac{\text{Net Income}}{\text{Total Equity}}\]The return on equity is one crucial measure of profitability used by many investors to analyze the performance of investment portfolios. It has a particular interest due to its relationship to Dupont's identity.

### Example of ROE Calculation

**Question**: Assume that your company has a net income of $45,000, and the total equity possessed by shareholders is
$500,000. Compute the return on equity for the firm.

Solution:

This is the information we have been provided with:

Net Income = | \(45000\) |

Total Equity = | \(500000\) |

The return on equity \((ROE)\) is computed using the following formula:

\[ \begin{array}{ccl} ROE & = & \displaystyle \frac{\text{Net Income}}{\text{Total Equity}} \\\\ \\\\ & = & \displaystyle \frac{\text{\textdollar}45000}{\text{\textdollar}500000} \\\\ \\\\ & = & 0.09 \end{array} \]Therefore, the return on equity for the given net income of \(\text{\textdollar}45000\) and total assets of \(\text{\textdollar}500000\) is \(ROE = 0.09 = 9\%\). This means the company generates \(\text{\textdollar}0.09\) in net income for every $1 in total equity.

### Finance calculators for other profitability ratios

You can also consider other measures of profitability, such as the return on assets or profit margin .

One interesting approach to the calculation of the Return on Equity is the use of DuPont Identity , which breaks down the ROE calculation into three crucial factors.