How to Calculate Return on Equity From Company Balance Sheets

by C. Taylor ; Updated April 19, 2017

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.