Return on Equity measures how much profit a company generates for every dollar of shareholders' equity. It divides trailing twelve-month net income by average shareholders' equity and is expressed as a percentage. ROE is one of the most widely tracked profitability metrics because it directly measures the return being generated on the capital that shareholders have invested.
A high ROE can indicate genuine operational excellence, but it can also be artificially inflated by leverage. A company that finances its assets heavily with debt will have a smaller equity base, and even a modest net income will produce a high ROE. This is why ROE should always be evaluated alongside leverage ratios — a 25% ROE driven by strong margins is fundamentally different from a 25% ROE driven by 5x leverage.
ROE can be meaningless or misleading for companies with negative equity (due to large accumulated deficits or aggressive buyback programs). In those cases, ROIC is typically a better measure of capital efficiency.
ROE = Net Income (TTM) / Average Shareholders' Equity Where Average Equity = (Total Equity current period + Total Equity same period prior year) / 2
The common rule of thumb is that an ROE above 15% is strong. Among US companies with a market capitalization above $2 billion, the median ROE is 11.7%, the middle half fall between 3.1% and 21.8%, and about 40% clear 15%. For companies above $10 billion the median is 14.9%. About 21% of companies above $2 billion have a negative ROE because they lost money over the last twelve months.
| Industry | Median | Middle 50% |
|---|---|---|
| Pharma & biotech | -36.8% | -67.6% – 7.4% |
| Medical devices | 3.4% | -22.1% – 15.7% |
| REITs | 5.2% | 0.6% – 9.9% |
| Software & IT services | 6.5% | -8.9% – 23.9% |
| Telecom & media | 7.1% | -5.7% – 18.1% |
| Food & beverage | 8.3% | 1.6% – 17.2% |
| Utilities | 9.8% | 6.9% – 12.2% |
| Oil & gas | 10.0% | -0.3% – 20.2% |
| Semiconductors & hardware | 10.1% | -3.2% – 21.3% |
| Industrial manufacturing | 10.5% | 2.6% – 18.1% |
| Transportation | 10.8% | 1.8% – 21.6% |
| Banks | 10.9% | 8.7% – 12.9% |
| Insurance | 14.0% | 8.3% – 22.1% |
| Retail | 14.3% | 2.9% – 32.4% |
Banks, insurers, and utilities cluster tightly around 10% to 14% because regulation and capital requirements limit how much they can earn on equity. Retailers and software companies spread much wider, from losses to returns above 25%. Pharmaceutical and biotech medians are negative because many are still developing products.
Check how a high ROE is achieved. Heavy borrowing or large buybacks shrink equity and raise ROE without improving the business, and a company with negative equity can show a meaningless figure. Comparing ROE with ROIC and the debt-to-equity ratio separates operating strength from leverage. Figures are GeminIQ calculations across US companies that file with the SEC, using each company's latest reported period as of September 2026. The middle 50% runs from the 25th to the 75th percentile. The industry table groups companies by SIC code and includes those above $300 million in market capitalization.
GeminIQ divides trailing twelve-month Net Income by Average Total Equity, sourced directly from the company's SEC filings. Average equity uses the current period and the same quarter one year prior to align with the TTM earnings window.
A: The common benchmark is above 15%. For US companies above $2 billion in market cap, the median ROE is 11.7% and about 40% clear 15%. Banks, insurers, and utilities cluster around 10% to 14%. Check that a high ROE comes from the business rather than from heavy borrowing or buybacks that shrink equity.
A: ROE can be inflated by leverage — a company with very little equity due to high debt or buybacks will show a high ROE even if its actual business profitability is unremarkable. ROE is also meaningless when equity is negative. For a complete picture, pair ROE with ROA (to strip out leverage) and ROIC (to measure efficiency of all invested capital, not just equity).
A: Differences commonly arise from how shareholders' equity is defined. Some aggregators include minority interests in equity, others exclude it. Some include preferred equity, others classify it separately. These reclassifications change the denominator and therefore the ratio. GeminIQ uses Total Shareholders' Equity as reported in the company's filing.
A: The company earned 20 cents of net income over the last twelve months for every dollar of average shareholders' equity. That is above the 15% benchmark and close to the 75th percentile (21.8%) for US companies above $2 billion in market cap, provided it is not the product of heavy debt or a shrunken equity base.
A: ROE divides net income by shareholders' equity only. Return on capital employed (ROCE) divides operating profit before interest and tax by capital employed, which includes debt as well as equity. ROCE therefore measures the whole business regardless of how it is financed, while ROE shows the return left for shareholders after the effect of leverage.
A: DuPont analysis splits ROE into three parts: net profit margin (net income over revenue), asset turnover (revenue over assets), and the equity multiplier (assets over equity). Multiplying them gives ROE, and the split shows whether a high ROE comes from margins, efficiency, or leverage.
Further Reading: Return on Invested Capital (ROIC) Formula and Benchmarks
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