Return on Stockholders Equity
Calculate Return on Stockholders Equity
Return on Equity. An indicator of corporate profitability, widely used by investors as a measure of how a company is using its money. There are two ways of calculating ROE: the traditional formula and the DuPont formula. The traditional approach divides the company's net profit after taxes for the past 12 months by stockholders' equity (adjusted for stock splits). But this fails to account for the effect of borrowed funds, which can magnify the returns posted by even a poorly managed company. An alternative approach, developed by the DuPont Corporation, links return on investment (ROI) to financial leverage (use of debt).
ROE = Net Profit After Taxes ÷ ...view middle of the document...
ROE = ($18,000 ÷ $100,000) x ($100,000 ÷ $45,000)
ROE = 18% x 2.22
ROE = 40%
Note: If the company did not use any borrowed funds, its equity multiplier would be 1.0 and its ROE would equal its ROI.
Look up state accounting practices to determine if there is anything different about the way the stockholder equity calculation is figured in the state you are located. It should be noted that laws pertaining to the accounting process differ slightly from state to state. If there is ever any doubt as to how to calculate certain information, an accountant should be consulted. However, the basic equation for stockholder's equity remains the same.
Calculate all assets. This includes equipment, buildings, cash, receivables, and furniture. Add the value of all assets together to get a total amount. The value of tangible assets such as equipment and vehicles will be the price at which the items were purchased minus any depreciation that has accumulated.
* Sponsored Links
* Accounting Software Guide
Download The New 2013 Accounting Software Guide & Know Your Options.
Calculate all liabilities. Liabilities would include such would include payables, short-term and long-term debt, outstanding checks, and any other liabilities. Add these values together to get a total dollar amount
Subtract the total liabilities from the total assets. The dollar figure that you come up with is the total stockholder equity for the company.
Read more: How to Calculate Stockholder Equity | eHow.com http://www.ehow.com/how_4759461_calculate-stockholder-equity.html#ixzz2NuGrrlLT