How to Calculate Return on Stockholders' Equity

Return on Stockholders' Equity Formula

The formula for calculating return on stockholders’ equity is net income divided by the average stockholders’ equity for the accounting period, multiplied by 100 to convert to a percentage. Net income is reported on a firm’s income statement. Compute average stockholders’ equity by adding the amount of stockholders’ equity at the beginning of the accounting period to the amount at the end of the period and dividing the result by 2. Stockholders’ equity is stated on the company’s balance sheet. Suppose a business earns net income of $1.5 million and the average stockholders’ equity works out to $7.5 million. In this case, $1.5 million divided by $7.5 million gives you a ROE of 20 percent.