# Return on equity

> Trailing twelve-month net income divided by the average of opening and closing shareholders' equity.

Updated Oct 17, 2026.

Return on equity (ROE) measures how much profit a company made over a year for each dollar of shareholders' equity on its books.

## Formula

```
ROE = TTM net income / ((opening equity + closing equity) / 2)
```

- **TTM net income** is the sum of the last four quarters, as described under [TTM](/glossary/ttm).
- **Closing equity** is [shareholders' equity](/glossary/shareholders-equity) on the latest balance sheet date.
- **Opening equity** is shareholders' equity on the balance sheet date four quarters earlier, at the start of the same twelve months.

Using the average of the two matches the profit, earned over twelve months, with the equity the company had over the same period.

## Reading it

- **Debt raises ROE.** A company that borrows more needs less equity for the same business, so its ROE rises with no change in how well it operates. Read ROE next to [debt-to-equity](/glossary/debt-to-equity).
- **Buybacks raise ROE** by shrinking equity.
- **Negative equity breaks it.** If average equity is negative, the formula still produces a number, but it is not a return in any useful sense. Check the equity figures before reading ROE.

## When it says "not reported"

TTM net income cannot be built, either equity figure is missing, or average equity is zero.

## Related terms

- [Net income](/glossary/net-income.md)
- [Shareholders' equity](/glossary/shareholders-equity.md)
- [TTM](/glossary/ttm.md)
- [Debt-to-equity](/glossary/debt-to-equity.md)

All terms: [/glossary.md](/glossary.md)