The return on equity, or ROE, is used in fundamental analysis to measure a company’s profitability. The formula to calculate a company’s ROE is its net income divided by shareholders’ equity. ROE determines the amount of net income a company generates with its shareholders’ equity. ROE could be used to compare the profitability of one company to another firm in the same industry.
Explaining How to Calculate Return on Equity in Excel
In Microsoft Excel, right click on columns A, B and C. Next, left click on Column Width and change the value to 30 for each of the columns. Then, click OK. Enter the name of one company in cell B1 and the name of another company into cell C1.
Enter Net Income into cell A2, Shareholders’ Equity into cell A3 and Return on Equity into cell A4. Next, enter the corresponding values for these descriptions in cells B2, B3, C2 and C3.
For example, Facebook Incorporated has a net income of $2.925 billion and shareholders’ equity of $36.096 billion as of Dec. 31, 2014, while its competitor, Twitter Incorporated, has net income of -$577.82 million and shareholders’ equity of $3,626,403,000.
Enter =2925000000 into cell B2 and =36096000000 into cell B3. Next, enter the formula =B2/B3 into cell B4. The resulting return on equity of Facebook Incorporated is 8.10%. Then, enter =-577820000 into cell C2 and =3626403000 into cell C3. Next, enter the formula =C2/C3 into cell C4. The resulting ROE of Twitter Incorporated is -15.93%. Twitter Incorporated is less profitable and operating at a loss, while Facebook Incorporated is profitable.