Formula
ROE = (Net Income / Shareholder’s Equity) × 100
Calculation Example
If a company has $5,000,000 in shareholder equity and earns $750,000 in net income, ROE = (750,000 / 5,000,000) × 100 = 15%
Data Source
Financial reports, accounting records
Tracking Frequency
Quarterly, Annually
Optimal Value
Higher is better; indicates strong return to shareholders.
Minimum Acceptable Value
ROE below industry average may indicate poor management efficiency.
Benchmark
Banking industry ~10-15%, Retail ~15-20%, Tech ~20-30%
Recommended Chart Type
Line chart (to track trends), Bar chart (to compare across companies)
How It Appears in Reports
Displayed as a percentage in financial reports and shareholder presentations.
Why Is This KPI Important?
Helps investors assess a company’s profitability and management effectiveness.
Typical Problems and Limitations
ROE can be inflated by excessive debt; does not reflect financial stability.
Actions for Poor Results
Reduce unnecessary debt, improve profit margins, optimize capital allocation.
Related KPIs
Return on Assets (ROA), Net Profit Margin, Earnings Per Share (EPS)
Real-Life Examples
A tech company improved ROE by focusing on high-margin products, increasing shareholder value.
Most Common Mistakes
Comparing ROE without considering leverage, ignoring the impact of debt on equity returns.
