Return on Equity (ROE)

Profitability

Updated Apr 2026 • Has calculator

Measures how much profit a company generates per dollar of shareholders' equity.

What is ROE?

Return on equity (ROE) divides net income by average shareholders' equity to show how efficiently management is generating profit from the capital shareholders have invested. A high ROE indicates strong profitability relative to book value, but it can be inflated by heavy debt or share buybacks that reduce equity — making it essential to examine ROE alongside the debt-to-equity ratio. Warren Buffett has long cited consistently high ROE as a hallmark of companies with durable competitive advantages.

Formula

ROE = (Net Income ÷ Shareholders’ Equity) × 100

Worked Example

FY2024 (year ended June 30, 2024)

Step 1 Net income: $88,136M

Step 2 Total stockholders’ equity: $268,477M

Step 3 ROE = $88,136M ÷ $268,477M × 100 = 32.83%

Step 4 → Microsoft generated $0.33 of profit for every $1 of equity

Source: Microsoft Annual Report FY2024 (2024-07-30)

Calculate ROE

Net Income

Annual net income (USD millions)

Shareholders’ Equity

Total stockholders’ equity at year-end (USD millions)

Return on Equity

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Not investment advice.

How to Interpret ROE

< 5

Weak — below cost of equity for most sectors

5 – 15

Average — meets typical cost of equity

15 – 25

Strong — above-average capital efficiency

> 25

Exceptional — high-return business model

📚 Profitability Metrics — Complete the path

Sources