Profit by itself does not say much. 100,000 euros of profit is fantastic for a company whose owners put in 300,000 euros, and rather meagre if there are 5 million euros of equity behind it. The return on equity (ROE) sets the profit against the equity and tells you how hard the owners' money is working.
What is return on equity?
Return on equity measures how much profit a company makes per euro the owners have in it. That equity consists of the capital the shareholders contributed, plus all past profits that have stayed in the company (the reserves and the profit carried forward).
For an investor, the ROE is the first question: does my money earn more here than in a savings account or a government bond? For you as a supplier, salesperson or credit controller it is a quick test of the quality of management. A company that achieves a decent ROE year after year earns its money efficiently and has room to absorb setbacks. A company with an ROE around zero holds on to capital without doing anything with it.
The ROE formula
ROE = (net profit / equity) x 100
The two figures you need are in every set of Belgian annual accounts:
- Net profit: the profit (or loss) for the financial year after taxes, at the bottom of the income statement (code 9904). This is the result that remains for the shareholders.
- Equity: the total of the liabilities heading equity (code 10/15) on the balance sheet: capital, share premiums, revaluation surpluses, reserves and profit carried forward.
Analysts sometimes use the average equity at the start and the end of the financial year, because the profit is built up over the whole year. For a quick check, the equity at the balance sheet date is enough. What matters most is that you use the same method every year, otherwise you compare apples with oranges.
Worked example
Suppose an installation company books a net profit of 150,000 euros in 2025 and has equity of 1,000,000 euros on 31 December.
| Item | Value |
|---|---|
| Net profit (code 9904) | €150,000 |
| Equity (code 10/15) | €1,000,000 |
| ROE | 150,000 / 1,000,000 x 100 = 15% |
For every 100 euros the owners have in the business, 15 euros of profit was added this year. By comparison: a savings account or government bond yielded around 2 to 3% in 2025. So the company comfortably earns the risk premium an entrepreneur may expect.
Now turn the example around. Suppose the same company makes the same 150,000 euros of profit, but with only 200,000 euros of equity and 1.5 million euros of debt. The ROE then jumps to 75%. Sounds better, but is it? We come back to that shortly.
What is a good ROE?
There is no legal standard, but in practice the following classification is used for Belgian SMEs. The starting point: the ROE must be clearly higher than what the owner would get risk-free on a savings account, because running a business involves risk.
| ROE | Assessment | What it means |
|---|---|---|
| More than 15% | Excellent | Strong return. Do check that it is not the result of a very small equity. |
| 10% to 15% | Good | The rule of thumb for a healthy SME: profitable and soundly financed. |
| 5% to 10% | Moderate | Stable, but the capital hardly earns more than a safe investment. Normal for capital-intensive sectors. |
| 0% to 5% | Weak | The company hardly makes any profit on its own funds. Ask yourself why. |
| Negative | Loss | Equity is shrinking. After several loss-making years in a row, negative equity looms. |
Compare within the sector
The figures above are a general guideline. A consultancy firm or software company needs little capital and easily reaches 20 to 30%. A transport company or a manufacturer with expensive machines must hold a lot of equity and is doing well at 8%. Therefore always compare a company with similar players, for instance companies with the same NACE code. On Jaarrekening.be, the Similar companies tab helps you find that peer group quickly.
Look at several years
One year says little. A one-off gain on the sale of a building can inflate the ROE for a year, and a large write-down or a restructuring can depress it for a year. Look at three to five financial years: a stable ROE of 12% is worth more than a series of 30%, 2%, 25% and 1%.
Why a high ROE can be a warning
Back to the reversed example: 150,000 euros of profit on 200,000 euros of equity, good for an ROE of 75%. That company does not have better products or sharper management than the company with 15%. It simply has little equity and a lot of debt. The denominator of the fraction is small, so the percentage is large.
This is called the leverage effect of debt. As long as the company earns more with the borrowed money than it pays in interest, the leverage pushes the ROE up. But leverage works in both directions: if the profit disappears for a year, the interest and repayments keep running, and 200,000 euros of equity is quickly used up.
Combine ROE with solvency
Therefore always read the ROE together with the solvency ratio (equity divided by the balance sheet total). That tells you how large the denominator really is. With our health score calculator you work them out in a few seconds.
| Combination | Assessment | What it means |
|---|---|---|
| ROE above 10%, solvency above 30% | Strong | Profitable and financed with own funds. The ideal customer or partner. |
| ROE above 20%, solvency below 15% | Watch out | The return comes from the leverage of debt. One bad year can weigh heavily. |
| ROE below 5%, solvency above 30% | Safe but slow | Many reserves, little return. Often an older SME hoarding capital. Low credit risk. |
| ROE below 5%, solvency below 15% | Avoid | Little profit and little buffer. Structural problems, certainly if the trend has lasted several years. |
Also watch the quality of the profit
The numerator deserves as much attention as the denominator. Profit is an accounting figure: a company can show a profit and still have no cash, as we explain in profit versus cash flow. So also look at EBITDA and cash flow. A nice ROE that comes mainly from exceptional income is gone next year.
Looking up ROE on Jaarrekening.be
You do not have to apply the formula yourself. This is how you find the ROE of every Belgian company that files annual accounts:
- Search for the company by name or enterprise number.
- Open the Key financials tab.
- Go to the profitability block. There the ROE sits next to gross and net profitability, per financial year and with a chart of the evolution.
- Scroll to solvency on the same tab to make the combination from the table above.
In summary
The return on equity is a test of efficiency: how much profit does the company extract from its owners' money? Calculate it as net profit divided by equity, aim for 10 to 15% for an SME, and compare over several years and within the sector.
But do not be dazzled by a spectacular percentage. An ROE of 50% on wafer-thin equity is not proof of strong management but of a large leverage. Always put the ROE next to the solvency ratio, and within a minute you know whether you are dealing with a profit machine or a house of cards.