What Is Return on Equity (ROE)?
Return on equity measures how much profit a company generates for each dollar of shareholders’ equity. It is net income divided by shareholders’ equity, expressed as a percentage. Where return on assets looks at the whole asset base, ROE focuses on the owners’ stake, which makes it one of the metrics investors watch most closely: it shows how well the company turns their invested capital into profit.
How to Calculate Return on Equity
ROE % = Net Income / Shareholders’ Equity
Worked example:
- Net income: $500,000
- Shareholders’ equity: $2,500,000
- ROE: 500,000 / 2,500,000 = 20%
A 20% ROE means the company earns twenty cents of profit for every dollar of equity.
Return on Equity in Power BI (DAX)
Equity is often averaged across the period. Replace the measures with the ones in your model:
Return on Equity % = DIVIDE ( [Net Income], [Total Equity] )What Is a Good Return on Equity?
A return on equity in the mid-teens is often considered healthy, though it varies by industry. The important caution is that a high ROE can come from genuine profitability or from heavy borrowing, which shrinks the equity base and inflates the ratio. A strong ROE paired with low debt is healthier than the same ROE propped up by heavy borrowing.
ROE vs ROA
Return on equity and return on assets differ in their base. ROA divides profit by total assets; ROE divides it by equity alone. Because assets are funded by both debt and equity, a company that borrows heavily can post a high ROE while its ROA remains modest. Reading the two together separates real operating efficiency from the effect of debt.
Reporting Return on Equity From Your ERP Data
ROE depends on net income and equity drawn consistently from the income statement and balance sheet, across every entity. A governed data foundation brings those onto one model so the ratio is consistent and ties back to the books. QuickLaunch ships pre-built models for JD Edwards, Vista, NetSuite, and OneStream that surface the financial statements for ratio reporting.
Frequently Asked Questions
How is return on equity calculated?
Divide net income by shareholders’ equity. A company with $500K of net income and $2.5M of equity has a 20% return on equity.
What is a good return on equity?
A return in the mid-teens is often considered healthy, though it varies by industry. Watch whether a high ROE comes from real profitability or from heavy borrowing that shrinks the equity base.
What is the difference between ROE and ROA?
ROE divides profit by equity; ROA divides it by total assets. A company that borrows heavily can show a high ROE while its ROA stays modest, so the two are read together.
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