Corporate finance
ROE / ROA Calculator
Compare accounting returns on average shareholders' equity and total assets.
Results
Enter values and press Calculate to see an explanation.
Result interpretation
ROE compares profit with shareholder capital; ROA compares it with all assets. Leverage can widen the gap, so high ROE alone does not prove better operations.
Read the learning guide →FORMULA
Formula
ROE divides net income by average equity; ROA divides it by average total assets for the same period.
Variables and average balances
Net income is earned over a period. Average equity and assets commonly average opening and closing balances, reducing dependence on one reporting date.
When to compare and limits
Use these ratios across periods or as a starting point among peers. Accounting policies, leverage, and business models limit direct cross-company comparisons.
WORKED EXAMPLE
Example
- Enter net income 120, average equity 600, and average assets 1,000.
- ROE = 120 ÷ 600 = 20%; ROA = 120 ÷ 1,000 = 12%.
- The eight-percentage-point gap may reflect debt funding; inspect leverage and earnings quality before drawing conclusions.
Frequently asked questions
How are average balances calculated?
A common approximation averages opening and closing balances. For large intra-period changes, use more frequent observations. Align the balance period with net income.
Why can ROE exceed ROA?
Debt financing can make equity smaller than total assets. Borrowing costs and risk also matter.
Can ROE be interpreted with negative equity?
Zero or negative equity makes the conventional ratio misleading. This tool requires positive average equity and assets.