Return on Equity formula
\[ \dfrac{\text{Net profit}}{\text{Average equity}} \]
Terms
- Equity, average of opening and closing: Owners’ stake: share capital, reserves and retained earnings, including the current year’s result.
- Net profit, period total: The period’s result after all income, expenses and taxes.
Result
Return on Equity is a percentage. Higher is better.
Target
A high ROE can come from good operations or from heavy borrowing; read it together with the debt-to-equity ratio.
Return on Equity pitfalls
- In Business Central the year’s result sits on income-statement accounts until the year-end close. Equity here includes it, so opening and closing equity are comparable within the year.
- With very low or negative equity, ROE becomes meaningless: it can be huge or flip sign.
Return on Equity in Business Central
Equity (average of opening and closing)
- Every income statement account
- Category Equity (14) and every category below it
141 posting accounts in total.
The full account list is on the Equity page.
Net profit (period total)
- Every income statement account
133 posting accounts in total.
The full account list is on the Net profit page.
Add Return on Equity to a Power BI report
I build Power BI finance reports on Business Central data, with Return on Equity, its trend and, where it helps, a forecast with a likely range. See it on your data