MihsabaHow to use
Calculate return on average equity from net income and average shareholders’ equity.
- Enter Net income.
- Enter Average equity.
- Calculate, then review the metric definition and comparison limits.
How it is calculated
Example
Net income of 50,000 and average equity of 250,000 give ROE of 20%.
Important notes
Leverage can lift ROE without a similar improvement in asset efficiency, so compare it with debt measures and ROA.
Worked examples and interpreting results
Net income of 50,000 and average equity of 250,000 give ROE of 20%.
| Case | Calculation | Result |
|---|---|---|
| ROE | 50000 ÷ 250000 × 100 | 20 % |
| Loss example | −25000 ÷ 250000 × 100 | -10 % |
How to check the result
Leverage can lift ROE without a similar improvement in asset efficiency, so compare it with debt measures and ROA.
Frequently asked questions
Does a high ROE always mean better performance?
No. A smaller equity base or greater leverage can raise ROE even without stronger operating performance.
Should the inputs use the same period?
Yes. Use figures from the same reporting period and accounting definition so balances and flows remain comparable.
Is the result enough for a decision?
No. The metric summarizes a numerical relationship; compare it with company history, industry context, and accounting or operating policies.