Result
ROE
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
ROE = net income ÷ shareholders' equity × 100%. It doesn't answer "how much did the business earn" but "how efficiently did it earn on the owners' money specifically" — unlike ROA, it ignores borrowed funds entirely.
It's more accurate to use average equity for the period rather than the ending figure: if equity grew a lot during the year (say, from a capital injection), ROE on the ending figure understates how efficiently the money that was actually in play for most of the period was used.
There's no single "good" ROE — it varies heavily by industry and capital structure. A sensible benchmark is the return the owner could get investing the same money elsewhere (a deposit, another business, the stock market): a business with ROE below that alternative is using capital inefficiently, even if it's technically profitable.