We use so many factors in the industry level to calculate the condition. **Sharpe Ratio **is just a factor of that kind. It will help to analyze the condition of the company based on the previous records. In this article, We’re going to elaborate the procedure of **how to calculate Sharpe ratio in Excel**.

## Download Practice Workbook

## Basics of Sharpe Ratio

The **Sharpe Ratio**, also known as **Sharpe Index**, is used to calculate the performance of an investment considering all the related risks. It compares investments of different risk profiles against each other.

In order to calculate the **Sharpe Ratio**, we follow the following formula:

`Sharpe Ratio = (Rp - Rf) / Ꝺ`

Where,** Rp** = Expected Rate of Return** Rf** = Risk Free Rate of Return** Ꝺ** = Standard Deviation

A higher value symbolizes a better investment. It means greater outcomes for the portfolio compared to the inherent risk.

## Process to Calculate Sharpe Ratio in Excel

### 1. Formula to Calculate Sharpe Ratio for Known Values

When the values are known, we can simply calculate the **Sharpe Ratio **by putting the values in the equation.

Here, we have a dataset with given **Expected Rate of Return**, **Risk Free Rate of Return **and **Standard Deviation**. Now, we can apply the formula to calculate the **Shape Ratio**.

**Steps**:

- First, select a cell for the output of
**Sharpe Ratio (i.e. C9)**. - Input the following formula in
**C9**:

`=(C4-C5)/C6`

Where,** C4** = **Expected Rate of Return**

**C5**=

**Risk Free Rate of Return**

**C6**=

**Standard Deviation**

- Finally, press
**ENTER**.

Thus, we can easily calculate the **Sharpe Ratio**.

**Read More: ****How to Do Ratio Analysis in Excel Sheet Format (with Quick Steps)**

### 2. Sharpe Ratio Calculation in Excel Based on Yearly Returns

We can also calculate the **Sharpe Ratio **considering the previous years’ records. Generally, when you need to calculate the **Sharpe Ratio** based on years, you’ll be provided a dataset with **Actual Rate of Return**, **Risk Free Rate of Return**.

**Actual Rate of Return **means the change in percentage of the actual investment and **Risk Free Rate of Return **means the hypothetical rate of return if there involves no risk.

Let’s assume, we have a dataset like the earlier now we’ll calculate the **Sharpe Ratio **from here.

**Steps:**

- Create an additional column named
**Excess Return**.

- Use the following formula to calculate the
**Excess Return:**

`=C5-D5`

Where,** C5** = **Actual Rate of Return**

**D5**=

**Risk Free Rate of Return**

- Now, press
**ENTER**.

- Use
**Fill Handle**to**AutoFill**the rests. - Input the following formula to calculate the
**Average Rate of Return**as it explains the cash flow of the investments generated over the years:

`=AVERAGE(C5:C9)`

Where, the mean value of the cells **C5:C9 **is calculated.

- Now, hit
**ENTER**.

- Now, write down the following formula to calculate the
**Standard Deviation**from the**Excess Return**as it symbolizes the dispersion of a dataset with its mean:

`=STDEV(E5:E9)`

- Press
**ENTER**.

- Finally, use the following formula to calculate the
**Sharpe Ratio**:

`=D11/D12`

Where,** D11 **= **Average Rate of Return**

** D12 **= **Standard Deviation**

- Lastly, press
**ENTER**to have our desired output.

**Read More:** **How to Calculate Ratio in Excel (4 Handy Methods)**

## Sharpe Ratio Calculator

We have created a **Sharpe Ratio Calculator**. You will find this within the provided practice workbook. You just have to input the required variables to have the **Sharpe Ratio**.

## Conclusion

We have tried to explain **how to calculate Sharpe Ratio in Excel **with 2 detailed explanations. We hope it will help the Excel Users. For further queries, comment below.

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