About the Return on Equity (ROE)
Return on Equity (ROE) is a free financial statement calculator for profitability analysis. Measures profit generated relative to average book equity. It is affected by both operating performance and leverage. Enter values from the source reports shown alongside each field and receive a calculated figure with contextual interpretation. The tool operates locally in your browser.
Formula or method
Formula: Net income ÷ Average shareholders' equity × 100. Find the required amounts on the reporting company’s Balance Sheet, Income Statement, Cash Flow Statement or supporting notes. Beginning and ending balance sheet amounts should cover the same period as the income statement numbers. Net income / net loss (Income Statement): Profit or loss attributable to the period after expenses and taxes. A negative value is a reported loss, not an input error. Beginning equity (Prior-period Balance Sheet): Shareholders' equity at the beginning of the period, usually the prior Balance Sheet closing figure. Ending equity (Current Balance Sheet): Shareholders' equity at the end of the period. Average with opening equity for ROE.
Worked example
Illustrative example inputs: Net income / net loss = 30,000; Beginning equity = 140,000; Ending equity = 160,000. Replace these sample figures with values from your financial statements to see the calculation. Use consistent units and period lengths; numbers in thousands and millions cannot be combined without conversion.
How to use the tool
- Locate the named accounts on the financial statements and read the accompanying footnotes.
- Enter each amount using one currency, scale and consistent reporting dates or reporting period.
- Read the value together with its low, high and negative interpretation. Compare with past years and industry peers.
Common uses
Financial statement review, small business monitoring, credit analysis, investor education.
Assumptions and limitations
Negative ROE with positive equity means a loss; negative or zero average equity makes standard ROE interpretation unreliable, so the tool marks it undefined. Low positive ROE may indicate weak earnings, excess equity or a different capital structure. High ROE can be attractive but also result from very low equity or heavy borrowing, so assess leverage and sustainability. Never decide whether a business is healthy from a single ratio alone. Sector norms, revenue recognition, reporting periods, one-time items and the cash-flow statement all matter.
Frequently asked questions
What does a return on equity (roe) result mean?
Measures profit generated relative to average book equity. It is affected by both operating performance and leverage. Low positive ROE may indicate weak earnings, excess equity or a different capital structure. High ROE can be attractive but also result from very low equity or heavy borrowing, so assess leverage and sustainability. If a denominator is zero, or book equity is nonpositive for ratios that depend on it, treat the result as undefined rather than zero.
Where to find the numbers on your financial statements
Use amounts from the same business, in the same currency and reporting period. Balance Sheet figures are amounts at particular dates; Income Statement and Cash Flow Statement figures cover a period.
Net income / net loss
Source: Income Statement
Profit or loss attributable to the period after expenses and taxes. A negative value is a reported loss, not an input error.
Beginning equity
Source: Prior-period Balance Sheet
Shareholders' equity at the beginning of the period, usually the prior Balance Sheet closing figure.
Ending equity
Source: Current Balance Sheet
Shareholders' equity at the end of the period. Average with opening equity for ROE.
What does the ratio tell you?
Measures profit generated relative to average book equity. It is affected by both operating performance and leverage.
How to read a lower result
Low positive ROE may indicate weak earnings, excess equity or a different capital structure.
How to read a higher result
High ROE can be attractive but also result from very low equity or heavy borrowing, so assess leverage and sustainability.
What if the ratio is negative, zero or undefined?
Negative ROE with positive equity means a loss; negative or zero average equity makes standard ROE interpretation unreliable, so the tool marks it undefined. A zero denominator is mathematically undefined. Assess profitability, cash generation and balance-sheet quality together.
Calculate the ratio using the formula
Net income ÷ Average shareholders' equity × 100
Privacy and support
Your inputs are processed locally in your browser. ToolMosaic does not upload or store the values you enter in this tool. Our tools are free, and we appreciate your support.