Our return on equity calculator uses the following ROE formula:
ROE = Net Income / Total Equity.
Profit is another term for net income. The outcome is a ratio, with both input numbers in the relevant currency. Simply multiply the ratio by 100 to get a percentage result. It’s worth noting that if you have too much debt, your equity could be negative, resulting in a negative return on investment.
Return on Equity (ROE) is a financial performance indicator that measures how effectively a firm utilises its net assets (equity = the company’s assets less its debt/liabilities). It’s computed by dividing a company’s net income (profit) by the net value of its assets (equity). It’s worth noting the difference between that calculation and the one used to compute Return on Capital Employed (ROCE), which includes liabilities.
It’s simple to change the relevant values in the formula above. For example, if a company’s net income for the fiscal year is $100,000 and it generated it with net assets worth $1,000,000, its return on equity is 1/10, or 10%. Our ROE calculator can help you confirm this. This means that for every ten dollars of net capital assets, the business returns one dollar of value. Because net equity fluctuates over the year, you can use the arithmetic average instead.
By multiplying the return on equity by the retention ratio, or the percentage of net income reinvested by the company to support future growth, the predicted growth of a company may be calculated. “Sustainable growth model” analyses are the term for such computations.
If you are the company’s single investor and there are no outstanding debts or liabilities, the return on equity equals the return on investment (ROI), hence you may use either this return on equity calculator or a ROI calculator to get the same result.
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