--- title: Return On Equity | Formula, Example, Analysis, Conclusion Calculator description: The return on equity (ROE) is a measurement of how well a company is performing from the shareholder’s perspective over a period of time. --- [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) **[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** Return On Equity # Return On Equity ![](https://www.carboncollectiveinvesting.com/hubfs/Brooke%20Tomasetti.png) Written by Brooke Tomasetti | Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts) Updated on October 1, 2024 Fact Checked Why Trust Carbon Collective? ### Table of Contents The return on equity (ROE) is a measurement of how well a company is performing from the shareholder’s perspective over a period of time. They can then take that information and compare it to other companies to determine how they fare in the market.  When evaluating return on equity, the shareholder looks at information from two places: the company’s income statement and their [balance sheet](https://www.carboncollectiveinvesting.com/sustainable-investing/balance-sheet/). From the income statement, the shareholder would look at the company’s [net income](https://www.carboncollectiveinvesting.com/sustainable-investing/net-income/) for that period of time. The “net income” is the cash flow that a company generates after their expenses. From the balance sheet, they would look at the company’s equity. The term “equity,” is also known as shareholder equity. If a company were to pay off all debt and liquidate all assets, then the equity would be the money the company would return to the shareholders. By calculating with these two key performance indicators, the shareholders can see how financially efficient a company is. They can determine how their investment is correlating to their competition. You can look at the numbers to compare the overall health of a company and to compare growth in certain periods ohttps://www.carboncollective.co/sustainable-investing/return-on-equity/./net-income/f time. For example, in a 2-year-old company you can calculate for the ROE for the full 2 years. But let’s say the 3rd quarter is typically your busiest. You could calculate the 3rd quarter ROE for each year and contrast them. This could help you to see a more specific growth timeline.  ## Return On Equity Formula ![ROE1-1](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/ROE1-1.png?width=246&name=ROE1-1.png) To clarify, the ROE takes a company’s net profit and divides it by the value of the shareholder equity. Simply put, shareholder equity is the cash value of the investment to date that the company still owes back to the shareholders.  Also, the period of time that you are measuring needs to match the period for the net income. You should be looking at the total equity due at the end of that same time period of time as well.   It is important to note that this formula is especially helpful for companies that have tangible assets. Tangible assets are physical objects that have a specific monetary value. This could include current assets, like stocks or bonds, and long-term assets like machinery or real estate.     The result of this calculation can be converted into a percentage to make it easier to understand in relation to other businesses in the market. If you are drawing up a comparison, it is far better to involve other companies within the same industry. Try to find companies with similar equity and a comparable business model. The results of your analysis would be far more precise.  ## Return On Equity Example Shareholders want to analyse the management of their company. The industry has an average ROE of 12%. Their company has a net income of $3,000,000. They have equity of 15,000,000. Calculate their return on equity. How does their company compare to the industry? Let’s break it down to identify the meaning and value of the different variables in this problem.  - Net Income: 3,000,000 - Shareholder Equity: 15,000,000 We can apply the values to our variables and calculate this company’s return on equity. ![ROE2-1](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/ROE2-1.png?width=221&name=ROE2-1.png) In this case, the return on equity for their company would be 0.2 or 20%.  Compared to the industry average of 12%, the shareholders can see that the company is doing significantly better than the overall industry.  Now, the shareholders can see that the company’s management is performing at a high standard. They are efficient with managing their finances, leaving shareholders to feel confident about their investment.   ## Return On Equity Analysis  Essentially, the shareholders want to know if a company can give them a profitable return on their investment. The results of a return on equity appraisal can indicate how attractive a business might be to its shareholders.  What’s more, the ROE can help you to assess the managerial plan of a given company. You will find the ROE to be an accurate indicator of their efficiency. A high ROE means that the company’s management is more adept at handling the finances and producing growth from the [capital](https://www.carboncollectiveinvesting.com/sustainable-investing/capital/) they’ve been given. For example, if a company has a low ROE, you might want to take a closer look at the decisions that managing employees are making. Can things be changed to produce a better ROE? You might be wondering if it’s even possible to change the results of your ROE. You can, but it might require some difficult decisions. But these decisions could help you create a more viable business in the long term.  If you are wanting to see a change in your ROE, you have two choices. You can either find a way to reduce the amount of equity, or you can find ways to increase your net income. This is the easier of the two options.  To lower your equity, one option would be choosing to increase the dividends you pay to your shareholders. However, to accomplish this you would likely have to use the money you would’ve paid to employees or money you needed for growth. Another option would be to get more financing (increasing your debt to equity ratio) and use the added cash flow to bankroll growth at an accelerated rate. Both these options would involve increased risk and potential sacrifices.  The other option would be to look at improving your net income. Some options here would include adjusting your prices, improving productivity, or making changes to your product and its quantities. Finding profitable solutions to increase your net income is a sign of the quality management that produces a high ROE rate.   ## Return On Equity Conclusion - The return on equity measures how well a company is performing from the shareholder’s perspective over a period of time.  - The ROE takes a company’s net profit and divides it by the value of the shareholder equity - The return on equity formula includes two variables: net income and shareholder equity.  - A high return on equity means that the company’s management is more efficient and will produce more growth.  ## Return On Equity Calculator You can use the return on equity calculator below to quickly evaluate a company’s financial management by entering the required numbers. Shareholder's Equity Net Income Return on Equity ## FAQs ### 1. What is meant by Return On Equity (ROE)? The return on equity, or ROE, is a measure of how well a company has been performing from the perspective of its shareholders. It takes a company's net profit and divides it by the value of the shareholder equity. ### 2. Why is the Return On Equity (ROE) important? The ROE is important because it gives shareholders a snapshot of how well their company is doing. A high ROE typically means that the company is making money and is efficiently managed. This can be an indication to shareholders that it might be a wise investment to put money into the company. ### 3. How do we calculate the Return On Equity (ROE)? The return on equity is calculated by taking a company's net income and dividing it by the value of the shareholder equity. The formula is: ROE = Net Income ​/ Shareholder′s Equity ### 4. Is a higher Return  On Equity (ROE) better? A high ROE suggests that the company is increasing its profit at a rate that is higher than the amount of shareholder equity. This suggests that the company is efficiently managed, and shareholders are likely to earn a good return on their investment. However, a much high ROE is not always better and there can be situations where a lower ROE is more desirable. For example, if the company is taking on too much risk, the ROE could be artificially high because of unsustainable accounting methods. ### 5. What is an example of a company with a high Return On Equity (ROE)? Some companies with a high ROE are Apple, Google, and Microsoft. All these companies are highly profitable and are efficiently managed. This allows them to generate a high ROE for their shareholders. ### Related Topics - [Sustainable 401(k) Plan](https://www.carboncollective.co/401k) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Retirement Glossary](https://www.carboncollective.co/sustainable-investing/retirement-planning-glossary) - [Best Retirement Plans](https://www.carboncollective.co/sustainable-investing/the-10-best-retirement-plans) - [Wealth Manager Vs Financial Advisor](https://www.carboncollective.co/sustainable-investing/wealth-manager-vs.-financial-advisor) ![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg) ### Attend Our Next Webinar Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios. [Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month) ![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg) ### Get Our Newsletter Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. Join Newsletter ![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=) ![Talk To A Human](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-chat.49d48c5b.svg) ### Talk To A Human Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call. [Ask a Question](https://ask.carboncollective.co/f70pooobq) Topics ## Sustainable Investing Topics View our list of some topics below. See More - Portfolios - [Performance](https://www.carboncollectiveinvesting.com/returns) - About - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - Learn - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - Contact - [Contact us](mailto:hello@carboncollective.co) - [Legal](https://www.carboncollective.co/legal) - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf) - [Back to top](https://www.carboncollectiveinvesting.com/sustainable-investing/return-on-equity#top-of-page) DISCLAIMERS: Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered. © 2026 Carbon Collective Corporation. All rights reserved. × #### Fact Checked Carbon Collective partners with financial and climate experts to ensure the accuracy of our content. Our team of reviewers are established professionals with years of experience in areas of personal finance and climate. They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others. This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible. × #### Why Trust Carbon Collective Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest. We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA). Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others. We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. } ```json { "@context" : "https://schema.org", "@type" : "Organization", "alternateName" : "Carbon Collective", "contactPoint" : { "@type" : "ContactPoint", "areaServed" : "US", "availableLanguage" : "en", "contactType" : "customer service", "telephone" : "(650) 868-2697" }, "logo" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png", "name" : "Carbon Collective Investing LLC", "sameAs" : [ "https://www.facebook.com/carboncollectiveinvesting/", "https://twitter.com/carbncollective", "https://www.instagram.com/carbon.collective/", "https://www.youtube.com/channel/UC769Y-F-L_B37kyQfdpvyXA", "https://www.linkedin.com/company/carbon-collective/", "https://www.crunchbase.com/organization/carbon-collective", "https://adviserinfo.sec.gov/firm/summary/310129", "https://www.wikidata.org/wiki/Q110243690" ], "url" : "https://www.carboncollective.co/" } ``` ```json { "@context" : "https://schema.org", "@type" : "FAQPage", "mainEntity" : [ { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "The return on equity, or ROE, is a measure of how well a company has been performing from the perspective of its shareholders. It takes a company's net profit and divides it by the value of the shareholder equity." }, "name" : "What is meant by Return On Equity (ROE)?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "The ROE is important because it gives shareholders a snapshot of how well their company is doing. A high ROE typically means that the company is making money and is efficiently managed. This can be an indication to shareholders that it might be a wise investment to put money into the company." }, "name" : "Why is the Return On Equity (ROE) important?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "The return on equity is calculated by taking a company's net income and dividing it by the value of the shareholder equity. The formula is: ROE = Net Income ​/ Shareholder′s Equity" }, "name" : "How do we calculate the Return On Equity (ROE)?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "A high ROE suggests that the company is increasing its profit at a rate that is higher than the amount of shareholder equity. This suggests that the company is efficiently managed and shareholders are likely to earn a good return on their investment. However, a much high ROE is not always better and there can be situations where a lower ROE is more desirable. For example, if the company is taking on too much risk, the ROE could be artificially high because of unsustainable accounting methods." }, "name" : "Is a higher Return On Equity (ROE) better?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "Some companies with a high ROE are Apple, Google, and Microsoft. All of these companies are highly profitable and are efficiently managed. This allows them to generate a high ROE for their shareholders." }, "name" : "What is an example of a company with a high Return On Equity (ROE)?" } ] } ``` ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Brooke%20Tomasetti.png", "url" : "https://www.carboncollectiveinvesting.com/sustainable-investing/author/brooke-tomasetti" }, "dateModified" : "2024-10-01", "datePublished" : "2021-03-24", "description" : "The return on equity (ROE) is a measurement of how well a company is performing from the shareholder’s perspective over a period of time.", "headline" : "Return On Equity | Formula, Example, Analysis, Conclusion Calculator", "image" : "", "mainEntityOfPage" : { "@id" : "https://www.carboncollectiveinvesting.com/sustainable-investing/return-on-equity", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png" }, "name" : "Carbon Collective" } } ```