The balance sheet is just one of the three major reporting statements that a company uses to assess its health. To calculate revenue, 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 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.
1. Calculate revenue. On the income statement, revenue and the cost of goods sold are two separate line items. Subtracting these yields the amount of money it cost the company to produce the product, not including overhead items such as administration. It's a record of revenues and expenses over a specific reporting period, such as a month, quarter or year.
2. Locate the company's assets on the balance sheet. Assets are listed at the top of the balance sheet and typically include cash and cash equivalents, accounts receivable and plant and equipment values. The balance sheet also includes liabilities, such as debt, accounts payable and other operating costs. The balance sheet is a record as of a certain date, not just a specific reporting period.
3. Divide the revenues by the assets to calculate return on equity. 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. Using the statements together ensures that the analyst gets a complete picture of the company's health.
Items you will need
- Income statement
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