What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


How to Calculate Return on Equity From Company Balance Sheets

Original post by C. Taylor of Demand Media

Return on Equity (ROE) is one of the most important indices for assessing a company's performance. It describes how effectively the company uses owner or shareholder equity to generate income. This equity may be invested directly into the company by a partner, or it may be invested through stock purchases. ROE is calculated using this and equity along with income, both of which may be found in a company's balance sheet.

Step 1

Look at the balance sheet and find the net income and equity. The equity also may be listed as owner equity or shareholders' equity.

Step 2

Divide the net income by the equity to calculate ROE. As an example, if your company generated $10 million in income from $80 million in equity, then you would divide 10 million by 80 million to get a ROE of 0.125.

Step 3

Multiply by 100 to convert the ROE into percent format. In the example, the ROE would be 12.5 percent.

                   

References

About the Author

C. Taylor has been a professional writer since 2009. He has written for online publications and the "Journal of Asian Martial Arts." Taylor specializes in martial arts, traveling, sciences and computer repair. He received a Master of Science in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences from the College of Charleston.

Advertisement