Return on Equity (ROE) Calculator with DuPont Breakdown
Return on equity measures how much profit a company generates for each dollar of shareholder equity. Enter net income and equity for a quick ROE, switch to average equity for accuracy, subtract preferred dividends, break the result into its DuPont drivers, or work backward from a target ROE.
Formula
Worked example
A company earns $8,000,000 in net income on $50,000,000 of equity: ROE = 8,000,000 ÷ 50,000,000 × 100 = 16%. DuPont splits this: a 6.67% net margin on $120,000,000 sales, 0.80x asset turnover on $150,000,000 of assets, and a 3.00x equity multiplier, which multiply back to 16%.
What return on equity tells you
Return on equity expresses a company’s annual net income as a percentage of the equity its shareholders have invested. It answers a simple question: for every dollar owners have tied up in the business, how many cents of profit does management generate each year? A consistently high ROE signals that a company turns shareholder capital into earnings efficiently, which is why investors use it to compare the profitability of businesses and to judge how well management deploys the capital entrusted to it. When a company has preferred shares, subtract the preferred dividends from net income first so the ratio reflects only the return earned for common shareholders.
The DuPont breakdown: where ROE really comes from
A single ROE figure hides why the number is what it is. The three-step DuPont model splits ROE into net profit margin (net income divided by revenue), asset turnover (revenue divided by total assets), and the equity multiplier (total assets divided by equity). Multiply the three and you get back the same ROE. This reveals whether a strong return is built on fat margins, efficient use of assets, or simply heavy borrowing. Two firms with an identical 18% ROE can be very different: one may earn it through a high margin and low debt, while the other leans on a large equity multiplier, meaning leverage. Turn on the DuPont breakdown to see all three drivers side by side.
Average equity, reverse solving, and edge cases
Shareholder equity equals total assets minus total liabilities. Because equity changes during the year, analysts often use the average of beginning and ending equity in the denominator for a fairer match against full-year income; switch the equity mode to do exactly that. The reverse mode works backward instead: tell it the ROE you want and the equity on hand, and it returns the net income the company would need to earn to hit that target. If equity is zero or negative, common after large losses or aggressive buybacks, ROE becomes undefined or misleading, so this calculator returns no result when equity is zero and you should rely on other measures instead.
Reading ROE and its DuPont drivers
| Measure | Typical healthy range | What it signals |
|---|---|---|
| Return on equity | 10% to 20% | Profit earned per dollar of equity |
| Net profit margin | Varies by industry | How much of each sales dollar becomes profit |
| Asset turnover | 0.5x to 2.5x | How efficiently assets generate sales |
| Equity multiplier | 1.5x to 3x | Leverage; higher means more debt funding |
General guidance; healthy ranges vary widely by industry and capital structure.
Frequently asked questions
What is a good return on equity?
There is no universal threshold, but many investors view a sustained ROE of 15-20% as strong for an established company, and 10% or so as roughly average. What counts as good depends heavily on the industry, since capital-light software firms naturally post higher ROE than capital-intensive utilities.
What is the DuPont breakdown and why use it?
DuPont analysis splits ROE into three parts: net profit margin, asset turnover, and the equity multiplier. Multiplying them returns the same ROE, but seeing each part separately tells you whether a high return comes from strong profitability, efficient asset use, or heavy borrowing. Turn on the DuPont breakdown and enter revenue and total assets to view all three.
Should I use beginning, ending, or average equity?
Average equity, the mean of the period’s opening and closing balances, is the most accurate because it matches a full year of income against the equity that was actually in place over that year. Switch the equity mode to average and enter the beginning and ending figures; otherwise a single ending value is fine for quick comparisons.
How do I work out the net income a company needs for a target ROE?
Switch to reverse mode, enter the ROE you want and the equity on hand, and the calculator multiplies them to find the net income required (adding back any preferred dividends). It is a quick way to set a profit goal or to test how realistic a target return is for a given equity base.