Return on equity: Reading Return on Equity Alongside Debt
ROE relates net income to average shareholder equity. A high result may reflect strong earnings, a small equity base or greater leverage.
Use the Return on equity Calculator to enter your own figures and compare the result with the worked example below.
Return on equity formula
ROE = Net income ÷ Average shareholders' equity
Worked example
| Item | Example value |
|---|---|
| Net income | 10000 USD |
| Average equity | 50000 USD |
| Return on equity | 20% |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Negative equity makes interpretation problematic. Examine profitability and financing together rather than ranking businesses from ROE alone.
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Method and further reading
The example follows the FinMathly calculator method. For broader background, see SEC: Understanding financial statements. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
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