**Return on equity ratio formula**diagram. This is one of the top business frameworks helping clients improve on their approach to strategy, project management, IT, HR, internal processes and client experience.

Formula and Calculation of Return on Equity (ROE) The basic formula for calculating ROE is: ROE= frac {text {Net Income}} {text {Shareholder Equity}} ROE = Shareholder EquityNet Income

The Return on Equity (ROE) Ratio is an accounting ratio of a company’s net profit to its total shareholder equity. There are two basic sources of shareholder equity.

The following is the ROE equation: ROE = Net Income / Shareholders’ Equity ROE provides a simple metric for evaluating investment returns. By comparing a company’s ROE to the industry’s average, something may be pinpointed about the company’s competitive advantage