Return on Equity (ROE) and Return on Assets, With Real 10-K Numbers

Michael Whitman · Trading since 2017, full-time since 2020 · Published 2026-09-26

Return on equity is one of the most quoted profitability ratios in investing, and one of the easiest to misread. A high figure can mean an excellent business, a heavily indebted one, or one that has handed so much cash back to shareholders that there is little equity left to divide by.

This page covers return on equity and its partner, return on assets, together. It then applies both to the latest annual reports of ten large US companies, so the ratio can be seen doing each of those three things.

How it works

Return on equity = net income / shareholders’ equity. Net income is the bottom line of the income statement. Shareholders’ equity is assets minus liabilities from the balance sheet, the part of the company that belongs to its owners.

Use average equity, not the year-end figure. Profit is earned across a whole year, while equity is a snapshot on one date. Averaging the opening and closing equity matches the two. This page uses the average throughout, and the choice matters (see When it fails).

Return on assets = net income / average total assets. It asks how much profit the company squeezes out of everything it controls, however that was paid for.

The two differ by one ratio. Assets divided by equity is the leverage multiplier: how many dollars of assets each dollar of owners’ money supports. ROE = ROA x leverage. A company funded half by debt has a multiplier near 2, so its ROE is about twice its ROA.

The DuPont breakdown

Split ROA one step further and you get the DuPont formula, named after the chemical company whose finance staff popularized it:

ROE = (net income / revenue) x (revenue / average assets) x (average assets / average equity)

That is profit margin x asset turnover x leverage. Revenue cancels out of the first two terms and assets cancel out of the last two, so the product is exactly net income over average equity.

Each term points to a different kind of company. A software firm earns a high margin on modest sales per dollar of assets. A warehouse retailer earns a thin margin but turns its assets over several times a year. A bank earns a fair margin on almost no turnover and relies on leverage. Three businesses can reach the same ROE by three routes, and the risks along each route are different.

The operating version of this idea, profit before interest and tax over total assets, is covered on the basic earning power page.

A worked example

Costco’s fiscal year ended 31 Aug 2025, and its 10-K reported net income of $8.099 billion on revenue of $275.235 billion. Shareholders’ equity was $23.622 billion at the start of the year and $29.164 billion at the end, an average of $26.393 billion. Total assets averaged $73.465 billion ($69.831 billion and $77.099 billion).

ROE = $8.099 / $26.393 = 30.7%. ROA = $8.099 / $73.465 = 11.0%.

Now the DuPont split. Margin = $8.099 / $275.235 = 2.94%. Turnover = $275.235 / $73.465 = 3.746 times. Leverage = $73.465 / $26.393 = 2.783 times. And 2.94% x 3.746 x 2.783 = 30.7%, the same ROE.

Coca-Cola’s 2025 ROE was higher, 46.0%, by a completely different route. Its margin was 27.34%, more than nine times Costco’s, but it turned its assets over only 0.467 times a year, and its leverage was 3.601 times: 27.34% x 0.467 x 3.601 = 46.0%. Costco makes its return on volume. Coca-Cola makes its return on price and a larger share of borrowed money.

The original data

Each company’s latest annual report, from its own XBRL filings with the SEC, downloaded 25 and 26 Sep 2026. Net income is the figure attributable to the company. Equity excludes minority interests, except for Johnson & Johnson, which reports only the combined figure. Averages use the opening and closing balances printed in the same 10-K.

The median ROE of the ten is 32.4%, and the median ROA 11.9%. The spread in ROA is the wider story: JPMorgan earned 1.4% on its assets and Nvidia 75.4%, yet they sit only 85 points apart on ROE, because JPMorgan carries $11.92 of assets for every dollar of equity and Nvidia $1.35.

Nvidia has the lowest leverage of the ten, 1.35, because it has little debt. Its high ROE comes from a 55.6% profit margin, not from leverage.

Apple shows what shrinking equity does to the ratio. Using each year’s own 10-K:

Between fiscal 2017 and 2025, net income rose 2.3 times and ROE rose 4.6 times. ROA rose 2.2 times, in line with profit. The rest of the jump in ROE came from equity falling from $134.05 billion to $73.73 billion as Apple spent heavily on stock buybacks.

The full table, all ten fiscal years from 2016 and every input, is in the Apple ROE table, and the ten companies with McDonald’s are in the ROE and DuPont table.

When it fails

Negative equity makes it meaningless. McDonald’s reported net income of $8.563 billion for 2025, and its shareholders’ equity was negative at both ends of the year, -$3.797 billion and -$1.791 billion. Divide one by the other and you get a large negative ROE for a very profitable company. Its ROA, 14.9%, is the usable figure. The shareholders’ equity page explains why equity can go negative without a company failing.

Buybacks inflate it. Apple’s case above is the clean example: the ratio rose far faster than the profit because the denominator shrank. A rising ROE deserves a look at whether equity fell before it counts as the business improving.

Debt inflates it. A company can lift ROE by borrowing to fund assets that earn a little more than the interest. The ROE rises and so does the risk, which the debt-to-equity ratio measures directly. JPMorgan’s 11.92 leverage is normal for a bank and would be alarming for a retailer.

Fast-growing equity depresses it. Nvidia’s equity roughly doubled in one year, from $79.33 billion to $157.29 billion. On average equity its ROE was 101.5%; on year-end equity it was 76.3%. The same profit gives two very different numbers depending on which equity figure a source uses, so compare like with like.

One-off items distort it. A large gain on selling a business, or a write-down, lands in net income for one year only. ROE for that year says little about the next.

Banks report it differently. Banks commonly quote ROE on common equity only, leaving out preferred stock, so a bank’s own figure will not match one computed on total equity as here.

Related

Shareholders’ equity covers the denominator and why it can shrink, and retained earnings is the part of it built from past profits. Basic earning power measures the business before debt and tax, and the debt-to-equity ratio measures the leverage that sits between ROA and ROE.

Stock buybacks shows the same Apple filings from the per-share side, and earnings per share is the other ratio that buybacks lift without the business changing.

This page is educational, not financial advice. Test every idea on your own charts before risking money.