KPI: Return on Equity

Return on Equity (ROE) is one of the most powerful KPIs for evaluating a company's ability to generate profit from shareholder investment. It tells you how effectively the company turns equity capital into earnings—offering a direct view into shareholder value creation.

At Levelup, we calculate ROE monthly using trailing twelve-month (TTM) data so you can track performance continuously, not just annually. This helps you stay ahead of inefficiencies, dilution, or underperforming capital—even if your net income is trending up.

Definition

TTM Return on Equity (ROE) measures a company's profitability in relation to shareholder equity. A higher ROE suggests strong financial performance and capital efficiency. A lower ROE may signal poor reinvestment strategies or an overreliance on debt financing.

Return on Equity Formula

TTM ROE = (TTM Net Income / Average Shareholders’ Equity over 12 months) × 100

Where:

This formula results in a percentage that shows how much profit the company generates for every dollar of shareholder equity.

Why Monitor ROE?

Profitability Indicator

ROE measures how efficiently your company turns equity into profit. High ROE = effective capital use.

Investment Attractiveness

Investors seek strong ROE as a sign of disciplined financial management and potential return on investment.

Financial Health Assessment

ROE highlights how well profits are being reinvested—whether into growth, operations, or value creation.

Competitive Benchmarking

ROE helps you compare your company to industry peers, such as others in retail or NAICS 316990, identifying whether you're outperforming or trailing your competition.

ROE vs. ROA

Unlike Return on Assets (ROA), which evaluates overall efficiency across all assets, ROE focuses solely on equity capital—what’s truly owned by shareholders. This makes ROE a clearer lens into owner-driven performance, especially when leverage or asset structure varies between companies.

Why Accrual Accounting Matters for ROE

Because ROE compares income and equity over time, accrual accounting is critical. It ensures revenue and expenses are matched to the periods in which they’re earned or incurred—giving you clean, consistent data.

Without it:

At Levelup, we use urge you to implement accrual-based accounting to ensure that you maintain integrity in all KPI calculations, including ROE.

Levelup Calculates ROE for You

Inside the Levelup dashboard:

Using ROE Strategically

Spot Inefficiencies

If ROE falls despite stable income, you may be accumulating equity faster than you're deploying it effectively.

Evaluate Reinvestment

ROE helps determine whether retained earnings are actually delivering results—or simply sitting on the balance sheet.

Monitor Dilution Risk

Adding outside capital or accumulating too much retained equity can dilute returns. ROE helps track that risk.

Compare Across Companies

ROE provides a normalized benchmark to assess performance across companies with different sizes, debt levels, or asset mixes.

Conclusion: Make Every Dollar of Equity Count

Return on Equity is a core financial signal that shows whether you’re rewarding your shareholders—and yourself—for the capital invested in the business.

To use it effectively:

Levelup handles the calculations for you, so you can stay focused on growth, profitability, and shareholder returns—not formulas.