What is return on equity (ROE)?
In short: return on equity (ROE) is a company's net profit over the last year as a percentage of its shareholders' equity — the net assets that belong to owners. An ROE of 15% means the company earned 15 cents of profit for every dollar shareholders have invested in it.
How is ROE calculated?
Return on equity is calculated by dividing a company's net profit for the last year by its shareholders' equity — total assets minus total liabilities — and expressing the result as a percentage. A company that earns ## How is ROE calculated?5 million on ## How is ROE calculated?00 million of equity has a return on equity of 15%.
ROE = net profit ÷ shareholders' equity. Equity is total assets minus total liabilities.
| Company | Return on equity (4 October 2026) |
|---|---|
| Commonwealth Bank (CBA.AX) | 13.9% |
| BHP (BHP.AX) | 24.0% |
| Wesfarmers (WES.AX) | 33.5% |
What does a high ROE mean?
A consistently high ROE suggests a business that turns shareholders' money into profit efficiently — often a sign of a durable advantage. For banks, ROE is one of the central measures of quality, and is read alongside price-to-book.
Where ROE misleads
- Debt inflates it. Borrowing shrinks equity relative to assets, so a heavily indebted company can show a high ROE. Check debt-to-equity alongside.
- Buybacks inflate it, by reducing equity.
- Small or negative equity makes it meaningless — an ROE in the hundreds of percent usually reflects tiny equity, not exceptional profit.
How ShareSift uses it
On ShareSift, a return on equity above 12% earns 8 of 100 points in the ShareSift value score.
Frequently asked questions
What is a good return on equity?
Above about 12–15% is generally considered good, and is the level ShareSift's value score rewards. More important than one year's figure is consistency over several years. Always check how much debt is behind it: a high ROE achieved with heavy borrowing is riskier than the same ROE without it.
Can return on equity be too high?
An extremely high ROE often signals something unusual rather than exceptional quality — very small equity after years of buybacks or losses, or heavy debt. When ROE runs far above the sector, look at the balance sheet to see whether equity is unusually small.
Sources
- ASIC Moneysmart, Choose your investments — the Australian regulator's guide to assessing investments.
- Company figures: Yahoo Finance via ShareSift, as of 4 October 2026. They change daily.
This information is general in nature and does not take into account your objectives, financial situation or needs. ShareSift is not a financial adviser and does not hold an Australian Financial Services Licence. Companies named are examples of how the measure works, not recommendations. Consider whether any information is appropriate for you and seek independent advice before making an investment decision.