The return on equity, or ROE, is used in fundamental analysis to measure a company's profitability. The ROE formula shows the amount of net income a company generates with its shareholders' equity. ROE may be used to compare the profitability of one company to another firm in the same industry.

### Key Takeaways

- Return on equity, or ROE, is a measure used by analysts to assess a company's profitability.
- ROE is a useful way of looking at the profitability of two competitors in the same sector.
- ROE is expressed as net income divided by shareholders' equity and can be calculated in Microsoft Excel.

## Calculating ROE in Excel

The formula to calculate a company's ROE is its net income divided by shareholders' equity. Here's how to use Microsoft Excel to set up the calculation for ROE:

- In Excel, get started by right-clicking on column A. Next, move the cursor down and left-click on column width. Then, change the column width value to 30 default units and click OK. Repeat this procedure for columns B and C.
- Next, enter the name of a company in cell B1 and the name of another company into cell C1.
- Then, enter "Net Income" into cell A2, "Shareholders' Equity" into cell A3, and "Return on Equity" into cell A4.
- Put the formula for "Return on Equity" =B2/B3 into cell B4 and enter the formula =C2/C3 into cell C4.
- Once that is completed, enter the corresponding values for "Net Income" and "Shareholders' Equity" in cells B2, B3, C2, and C3.

## Example of Calculating ROE

Suppose that Meta, formerly Facebook, (FB) had a net income of $15.920 billion and shareholders' equity of $74.347 billion as of Dec. 31, 2017. Its competitor, Twitter (TWTR), had a net income of -$108.063 million and shareholders' equity of $5.047 billion.

Let's set up the calculation for this example in Excel:

- Enter =15920000000 into cell B2 and =74347000000 into cell B3.
- The resulting return on equity of Meta is 21.41%, according to the formula in B4, =B2/B3.
- Then, enter =-108063000 into cell C2 and =5047218000 into cell C3 for Twitter.
- The resulting ROE of Twitter is -2.14%, according to the formula in C4, =C2/C3.

Twitter is thus less profitable and operating at a loss, while Meta is highly profitable.

## Time Saving Tips for Advanced Users

There are some ways to save time when using the ROE formula in Excel repeatedly.

- Left-click on column A. Then, press and hold the shift key while left-clicking on column C. Columns A, B, and C should now be selected simultaneously. When right-clicking on the selected area, it should be possible to adjust the width for all the columns at the same time.
- It is also possible to calculate the ROE for more than two firms by selecting more columns. D will work for three firms, E for four, F for five, and so on.
- The formula of =B2/B3 in cell B4 can be copied by pressing Ctrl+C and then pasted into C4, D4, and other cells with Ctrl+V. The values in the formula will automatically adjust to C2/C3, D2/D3, or other appropriate cells.
- The names of companies and values for "Net Income" and "Shareholders' Equity" can be changed without reentering the formulas.
- It is also possible to create a template. Simply save a spreadsheet called "ROE template" with blank values for Net Income, Shareholders' Equity, and the names of companies.