How to Calculate the Rate of Return on Tangible Equity
- 1). Subtract the company's goodwill and intangibles from the common shareholder equity to find the tangible equity. For example, if the company has common shareholder equity of $11 million and goodwill of $1.8 million, subtract $1.8 million from $11 million to get $9.2 million.
- 2). Divide the company's net income by the tangible to find the return on tangible equity expressed as a decimal. For example, if the company has $905,000 in net income, divide $905,000 by $9.2 million to get 0.0984.
- 3). Multiply the result by 100 to find the rate of return on tangible equity expressed as a percentage. Completing the example, multiply 0.0984 by 100 to find the rate of return on tangible equity equals 9.84 percent.