Yes, return on equity (ROE) is expressed as a percentage. It tells you how many cents of profit a company generates for every dollar of shareholders’ equity. An ROE of 15% means the company earned 15 cents in net income for each dollar that shareholders have invested in the business.
How ROE Is Calculated
The formula is straightforward: divide net income by shareholders’ equity. Net income is the company’s profit after all expenses and taxes. Shareholders’ equity is the difference between a company’s total assets and total liabilities, essentially the book value of what shareholders own.
If a company reports $50 million in net income and has $250 million in shareholders’ equity, the math looks like this: $50M รท $250M = 0.20, or 20%. Some analysts use average shareholders’ equity (the average of the beginning and ending balance for the year) rather than a single point-in-time figure, which smooths out any big swings during the year. Either way, the result is multiplied by 100 to convert it into a percentage.
What Typical ROE Percentages Look Like
ROE varies dramatically by industry. Capital-light businesses that don’t need huge investments in equipment or inventory tend to post higher numbers, while asset-heavy industries often run lower. According to data from NYU Stern as of January 2026, here’s a sampling of average ROE across sectors:
- Semiconductors: 31.36%
- Software (System & Application): 29.62%
- General retail: 26.05%
- General insurance: 19.07%
- Computer services: 18.25%
- Money center banks: 12.86%
- Regional banks: 9.75%
- Grocery and food retail: 12.90%
As a rough rule of thumb, an ROE between 15% and 20% is generally considered strong. Below 10% suggests the company isn’t generating much profit relative to shareholder investment. But comparing a bank’s ROE to a software company’s ROE isn’t particularly useful because their business models require very different levels of capital.
Why ROE Can Be Misleadingly High
A high ROE percentage isn’t automatically a good sign. Companies that carry a lot of debt can show inflated ROE because borrowing reduces the equity base in the denominator of the formula. If a business earns a return on its assets that exceeds the interest rate it pays on debt, leverage pushes ROE higher. A company with $500 million in debt and $500 million in equity that earns 20% on its total assets while paying 10% interest on its borrowings will show an ROE well above 20%, even though the underlying business performance hasn’t changed.
This is why investors often look at ROE alongside the debt-to-equity ratio. A company with a 25% ROE and modest debt is in a very different position than one with a 25% ROE propped up by heavy borrowing. The second company carries more financial risk, especially if revenue drops and it still has to service that debt.
When ROE Goes Negative
ROE can also be a negative percentage. This happens when a company reports a net loss instead of a profit. Startups commonly post negative ROE for years before they become profitable. Established companies can also show negative ROE during restructuring periods or after one-time write-downs. Hewlett-Packard, for example, reported an ROE of negative 51% in 2022 after taking large charges related to headcount reductions and writing down goodwill from a failed acquisition.
A negative ROE doesn’t automatically mean a company is a bad investment. Some businesses lose money in the short term while building toward long-term profitability, and companies with negative net income sometimes still generate healthy cash flow. But a company that posts negative ROE year after year without a clear path to profitability is a warning sign that the business may not be financially sound.
How to Use ROE in Practice
When you’re evaluating a stock, ROE works best as one piece of a larger picture. Compare a company’s ROE to others in the same industry to see whether it’s above or below average. Track it over several years to see if it’s trending up or down. And check whether debt is doing the heavy lifting by looking at how leveraged the company is.
ROE is most useful for comparing companies with similar business models and capital structures. It’s less useful for companies with negative earnings, those undergoing major restructuring, or businesses in industries where asset values on the balance sheet don’t reflect economic reality well. Pairing ROE with metrics like return on assets and profit margins gives you a more complete view of how efficiently a company turns resources into profit.