Where your computed ROE falls and the story each band usually tells. These bands are rules of thumb, not standards — and because leverage inflates ROE, a high figure is most reassuring when it comes with reasonable debt, so always read it next to ROA and the equity multiplier.
Range
What it typically suggests
Below 0%
A loss on owner capital — equity is being eroded rather than rewarded this period.
0% – 10%
Modest return — owners earn relatively little per dollar of equity; check whether margins or asset use are weak.
10% – 20%
Above-average for many businesses — owner capital is being put to productive use.
Above 20%
Strong return — impressive if driven by genuine profitability, but verify it is not simply high leverage.
◀ your result (25.00%)
Estimates only — not financial, tax, or professional advice.
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What it calculates: Return on Equity, Return on Assets, Equity Multiplier.
Updated 5 June 2026 · Transparent assumptions
ROE = ROA x equity multiplier, and the split tells you which one you are buying
$50,000 of net income on $200,000 of equity is a 25% return on equity. But the company holds $500,000 of assets, so return on assets is 10% and the equity multiplier — assets divided by equity — is 2.5. Multiply 10% by 2.5 and you recover the 25% exactly. That is the DuPont identity, and it is the reason ROE should never be read alone.
The two halves mean entirely different things. A 25% ROE built on a 25% ROA and no leverage describes an exceptional business. The same 25% built on a 5% ROA and a multiplier of 5 describes an ordinary business carrying a great deal of debt. The headline is identical; the risk is not remotely.
The equity multiplier amplifies returns in both directions, symmetrically
Leverage lifts ROE whenever assets earn more than debt costs. Borrowing to buy assets returning 10% while paying 6% adds the 4% spread to equity holders, multiplied by how much was borrowed. That is the entire mechanism behind a high equity multiplier.
The symmetry is the problem. If asset returns fall below the cost of debt, the same multiplier magnifies the loss, and a business with a multiplier of 2.5 loses equity two and a half times as fast as an unlevered one. Rising ROE accompanied by a rising equity multiplier and a flat ROA is not improving performance — it is increasing risk, and it reverses violently.
Buybacks, write-downs and negative equity can all produce a spectacular ratio
Because equity is the denominator, anything that shrinks it inflates the ratio. Large buybacks reduce equity and raise ROE without the business earning a cent more. A history of losses or write-downs does the same. Taken far enough, equity turns negative and ROE becomes meaningless rather than infinite — a company with negative equity and positive income cannot be described by this ratio at all.
Intangibles cut the other way. A company that grew by acquisition carries goodwill on its balance sheet, inflating both assets and equity and depressing both ratios relative to a company that built the same capability internally. Comparing ROE across companies with very different acquisition histories needs that adjustment, or it compares accounting rather than performance.
Year-end balances, one period, and no sector context
Equity and assets here are point-in-time figures, while net income covers a period. Where the balance sheet moved substantially during the year — a large raise, a major acquisition — using average equity rather than the closing figure gives a truer ratio, and the difference can be several points.
Sector context is essential. Banks routinely run equity multipliers above 10 because that is the nature of the business; a manufacturer at the same level would be in distress. Utilities earn low, stable ROEs by design. A 25% ROE is only interpretable against the norms of the industry and against the company\u2019s own history.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Verified the DuPont identity directly — return on assets multiplied by the equity multiplier reproduces return on equity — so the decomposition shown cannot disagree with the headline ratio.
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