The balance sheet is just one of the three major reporting statements that a company uses to assess its health, or that investors use to determine whether or not investing in a particular company makes good financial sense. To calculate revenue, you need more than the balance sheet, you must use the income statement – also called the profit and loss statement – which contains information on revenue in a given reporting period. Using this information, in conjunction with the total assets that are reported on a company's balance sheet, will provide you with an estimate of how much return on equity a shareholder is earning.
Profit and Loss Statement
In order to calculate a company's revenue, you will need its income statement. On the income statement, revenue and the cost of goods sold are two separate line items. Subtracting these two figures will yield the amount of money it costs the company to produce a particular product or provide a particular service, not including overhead items such as administration costs. It's a record of revenues and expenses over a specific reporting period, such as a month, quarter or year.
The Balance Sheet
Locate the company's assets on the balance sheet. The balance sheet is a record as of a certain date, not just a specific reporting period. Assets are listed at the top of the balance sheet and typically include cash and cash equivalents, accounts receivable as well as operation plants and equipment values. In addition to the assets owned by the company, the balance sheet also includes all liabilities, such as debt, accounts payable and other operating costs. These liabilities can be both long-term (debt held for more than one year) and short-term (debt that will be paid off within less than a year.)
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In order to calculate the return on equity you can expect, first you must divide the revenues by the assets. The return on equity calculates how much a shareholder earns based on the company's current revenue. Because the balance sheet and the income statement don't measure similar items over a similar reporting period, calculating revenue from a balance sheet alone is improbable. However, in order to get a the most accurate figure, you will need to use both the balance sheet as well as the profit and loss statement; these statements together ensure that the analyst gets a complete picture of the company's health before making any investment decisions.
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