It is a ratio expressed in percentage terms. Return on Net Worth Calculator is used to calculate the profits earned by the company on the investments made by shareholders of the company. We calculate it from the investors` point of view rather than the company’s point of view. It becomes a useful tool while comparing two companies of the same industry. It is also known as return on equity.
For calculating return on net worth, divide the shareholders’ equity by net income. The formula for calculating the same is as follows.
Return on Net Worth = Net Income / Shareholder`s Equity
Return on Net Worth Calculator
How to Calculate using Calculator?
The user has to insert the following details into the calculator.
Net Income – Net Income can be obtained from the income and expenditure statement of the company. It is net off of all the expenses, including interest paid to debt holders of the company. Net Income is that portion of earnings that is available for distribution among shareholders after the company pays off all its expenses. Moreover, it is the earnings available for the equity shareholders. Hence, preference dividends will also be excluded.
Shareholders’ Equity – Shareholders’ equity can be calculated by subtracting total liabilities from total assets. It is the owners` claim on assets after paying off debt. In other words, all those belong to Equity Shareholders will become this figure. Hence, preferred equity will be excluded. We can call it the Shareholders’ Kitty also to convey the same meaning. Thus, this is the total investments of Shareholders in the company, including the retained earnings, reserves, and surplus, over the years.