Return on Equity (ROE) Calculator

What return on equity tells you

Return on equity answers a question every business owner and investor cares about: how hard is the shareholders’ capital working? It divides profit after tax by the equity in the business, so an ROE of 20% means the company turns every ₹100 of owners’ money into ₹20 of annual profit. On ₹5,00,000 of net income against ₹25,00,000 of equity, that is exactly the return this calculator reports. It is one of the cleanest single measures of how efficiently a company uses the capital its owners have committed.

• ROE = Net income ÷ Shareholders’ equity × 100
• ROA = Net income ÷ Total assets × 100

ROE, ROA and the leverage trap

ROE has a well-known blind spot: debt. Because borrowing shrinks the equity base without necessarily improving the underlying business, a heavily leveraged company can post a flattering ROE that owes more to its loans than its performance. This is why ROE should be read next to return on assets, which measures profit against everything the company owns, debt-funded or not. A wide gap between a high ROE and a modest ROA is a tell-tale sign that leverage, not operational excellence, is doing the heavy lifting.

What actually drives ROE

The DuPont analysis breaks ROE into three levers: net profit margin (how much of each sale becomes profit), asset turnover (how much revenue the assets generate) and financial leverage (how much debt supports the equity). A company can lift ROE by widening margins, using assets more intensively, or simply borrowing more. Only the first two reflect genuine improvement; the third merely amplifies returns and risk together. Splitting ROE this way shows why it moved, not just that it did.

Using ROE well

For Indian companies, a sustained ROE above 15% is generally healthy, and the best businesses hold 18-25% for years. But context is everything. Compare ROE within a sector — banks, FMCG and IT firms sit in very different bands — and prize consistency over a single stellar year, which can be inflated by one-off gains or share buybacks. Use average equity where the data allows, and never treat ROE as a verdict on its own: growth, cash flow, debt and the price you pay all decide whether a high-ROE company is actually a good investment.