Calculate the net income by subtracting the total cost of sales from the revenue made from sales. The total cost includes the cost of goods, interest paid on goods and the depreciation of goods.
Calculate the net profit margin bu dividing the net income by money made from sales.
Compute the total assets by adding the current assets to fixed assets. Current assets include items like cash and savings deposits. Fixed assets include items like land, buildings and equipment.
Compute the total asset turnover by dividing the money made from sales by the total assets.
Calculate the return on assets by multiplying the net profit margin with the total asset turnover.
Determine the total liabilities. Liabilities include things like income taxes, accounts payable, term loan payments and the remaining balance on the term loan.
Compute the equity. Equity equals the total assets minus the total liabilities.
Find the equity multiplier. Divide the total assets by the equity.
Calculate the return on equity. Multiply the return on assets by the equity multiplier.