How to Calculate Return on Stock Holder's Equity

by Matt McGew

The return on stockholder's equity is a ratio commonly used in accounting and finance to evaluate stockholder's return on investment. This figure demonstrates the rate stockholders earn on shares of stock currently held. You can manually calculate the return on stockholder's equity with some basic information found on company's balance sheets and income statements.

Determine a company's net income. You can find the company's net income listed on the company's income statement. For example, assume a company's net income is $500,000.

Determine a company's stockholder's equity. You can find the company's stockholder's equity listed on the company's balance sheet. For example, assume the company's stockholder's equity is $2.5 million.

Divide the net income by the stockholder's equity. Continuing the same example, $500,000 divided by $2.5 million equals 20 percent. This figure represents the return on the stockholder's equity.

References

  • "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
  • "Principles of Accounting" Belverd Needles et al; 2010

About the Author

Since 1992 Matt McGew has provided content for on and offline businesses and publications. Previous work has appeared in the "Los Angeles Times," Travelocity and "GQ Magazine." McGew specializes in search engine optimization and has a Master of Arts in journalism from New York University.