The return on common stock equity is calculated by dividing
A) net income by average common stockholders' equity.
B) net income less preferred dividends by average common stockholders' equity.
C) net income by ending common stockholders' equity.
D) net income less preferred dividends by ending common stockholders' equity.

Question

Quizplus · Accepted Answer

The return on common stock equity takes into consideration the net income available to common stockholders after preferred dividends have been paid. Therefore, option B is the correct formula where net income less preferred dividends is divided by average common stockholders' equity.

The Return on Common Stock Equity Is Calculated by Dividing