How to Calculate Performance Returns
Most investors hope to make a profit from their investments. As such, they use performance return measures as a way to compare investments over time. Two of the most commonly used performance return measures are Return on Assets (ROA) and Return on Equity (ROE). ROA tells the investor how profitable a company is relative to its assets. ROE tells the investor the amount of net income returned to the company as a percentage of shareholders' equity. Together, these return measures provide the investor with clues about the investment potential of a company.
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Instructions
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Calculate Return on Assets
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1
Obtain the annual report for the company you want to calculate performance returns for.
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2
Determine the company's net income. This is found on the income statement.
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3
Determine the company's total assets. This number is on the balance sheet.
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4
Divide net income by total assets to calculate the company's ROA. For instance, if net income is $10,000 and total assets are $100,000, the ROA is $10,000 divided by $100,000, or 10 percent.
Return on Equity
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5
Determine shareholders' equity. Shareholders' equity is shown on the balance sheet.
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6
Determine net income. This is the same net income used to calculate ROA.
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7
Divide net income by stockholders' equity. For example, if stockholders' equity is $50,000, then ROE is calculated as $10,000 divided by $50,000, or 20 percent.
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References
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