Return on Equity Calculator
Measure income available to common shareholders relative to their average book equity.
Return on average common equityExample20%
- Average common equity
- $100,000
How to calculate return on equity
ROE = income available to common shareholders ÷ average common equity × 100
Uses positive book equity at both dates. Exclude preferred dividends from the income numerator. Buybacks and leverage can raise ROE without improving operations.
Worked example
An illustrative scenario. “Reset to example” restores it in the calculator.
- Net income available to common shareholders
- $20,000
- Opening common equity
- $80,000
- Closing common equity
- $120,000
Return on average common equity: 20%
Return on Equity FAQ
Why is negative equity excluded?
A negative or near-zero equity base can create a misleading positive or extremely large ratio. Review the underlying balance sheet instead of interpreting it as a normal return.