Return on equity is easy to calculate: it's the company's net income divided by its net asset value (that is, its total assets minus its total liabilities).

In order to find these figures, you'll either need to go to a financial website, like Yahoo Finance, or look up the company's annual report.

For the former, here' is the procedure:

1) Go to Yahoo Finance at http://finance.yahoo.com
2) Type "ko" in the "enter symbol" field, and type enter. This will bring up a quote for the Coca-Cola Company.
3) On the lower left hand side, there is a group of three links under the word "Financials."
4) Click on "income statement."

I recommend, however, that you get this information from the company's full annual report. To do this, you'll need to:

1) Go to www.sec.gov
2) Click on "Search for Company Filings"
3) Click on "companies and Other Filers"
4) Type the company name in the "company name" search field. For now, type in coca cola (two words).
5) Click the link next to the left of the appropriate company. Click on the link for "Coca Cola Co".
6) Scroll down, looking for a 10-K document. For Coca Cola, you'll need to click on the "Next 80" button to go to the next page.
7) Click on the 10-K link.
8) You'll get a list of links, one of which will contain the relevant information you need. It will probably be named "10-K" or "Annual Report."

For Coca-Cola, the first link will bring you to the bulk of the annual report.

Now, search for "Consolidated Statements of Income". You'll see that the company's net income last year was $4,347 (rounded to the nearest million). Then, find the company's "Consolidated Balance Sheets". You'll see that the company's total shareowners' equity is $14,090. Dividing $4,347 into $14,490, we get a return on equity for Coca-Cola of 30%.

It's also useful to look at return on tangible equity. The reason for this is, if you are estimating a company's free cash flow (FCF) using the formula I mention on this site (i.e., FCF = earnings per share * (return on equity - growth rate) divided by return on equity) you will usually get a more accurate result if you leave intangible assets out of the equation. If you're not sure what to do, just subtract goodwill and leave the other intangibles in.

Removing all intangible assets, we get a tangible equity of $14,090 minus $1029 in goodwill, minus about $3000 in other intangible assets, giving us a total tangible equity of $10,101. So our return on tangible equity is $4,347/$10,101, or 43%.

Removing just goodwill, we get an adjusted equity value of $13,061, for a return on equity of 33%.

Return on invested capital is a little more complicated. It is defined as:

Net operating profits after taxes
-------------------------------------------------------------------
assets - excess cash - investments - non interest bearing liabilities

First, look at the company's income statement. Basically, net operating profits after taxes (NOPAT) = operating income * (1 - tax rate), which is equal to:

Operating income * [1-(income tax expense/income before taxes)]

For Coca-Cola in 2003, this is equal to:

$5,221 (million) * [1-(1148/5495)]
= $5,221 * 0.791 = $4130

Note: Coca-Cola earns "equity income," that is, income from businesses that Coca-Cola owns a large, non-controlling stake in. These are not included in our calculation of NOPAT. If you wish to add this back into NOPAT, you'll need to count long-term investments as part of the company's investment capital. The reason is, "equity income" comes from these "long term investments," so either both should be included in your return on invested capital calculation, or both should be excluded.

Now let's look at the Coca-Cola's balance sheet. Its invested capital is equal to (total assets - excess cash - non interest bearing liabilities). First, let's define these terms.

Excess cash is defined as the total amount of cash held by the company minus the amount of cash that is necessary for running the business. Unfortunately, there's no good way to determine which cash is "excess cash." Certain industries, for instance, require more cash on hand than others. I just remove all cash in my calculations. Other investors don't remove any cash at all (these people argue that, if a company typically holds a lot of cash, this should be considered part of what is being invested in the business, and should remain in our calculation of capital). Others estimate that excess cash is any cash beyond a certain percentage (perhaps 5%) of sales.

As for current liabilities, you want to figure out which ones incur interest and which do not. Liabilities which usually do not incur interest are:

Accounts payable
Accrued expenses
Unearned revenue
Income taxes payable
If you're not sure whether something incurs interest or not, assume that it does.

If you want to be specific, you might be able to sort it out by studying the section of the company's annual report titled: "Notes to Consolidated Financial Statements."

So, we can take Coca-Cola's $27,342,000 in total assets, subtract the company's $9,020,000 in cash, short term investments and long term investments. Then we'd subtract its accounts payable of $4,980,000. This gives us an invested capital of $13,342. So Coca-Cola's return on invested capital, including intangible assets, is

$ 4,130
--------
$13,342

=31%.