How to Calculate Equity Return

The ROE shows how well a money used the invested funds for profits.

The ROE shows how well a money used the invested funds for profits.

The equity return of a company is usually referred to as the return on equity (ROE) and is a measure of the company’s income based on the shareholder’s equity. The figure is calculated as a percentage and is a direct reflection of how well the company is using its invested equity. The determination of profits is determined after preferred stock dividends but before common stock dividends are paid.

Review the company’s annual report to determine the year’s profit and the shareholder’s equity. You can obtain the annual report by visiting the company’s website and going to the investor relations section; every reputable public company has this section on its website.

Divide the shareholder’s total equity into the company’s profit for the year. If the company made $50 million in profits for the year and the total shareholder’s equity $150 million, you divide $50 million by $150 million with a resulting figure of 0.33.

Convert the result into a percentage by multiplying by 100. The decimal figure of the ROE is 0.33; multiply this by 100 and you have the figure in the form of a percentage. The ROE for this example is 33 percent.

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