The return on common stockholders' equity is computed by dividing net income available to common stockholders by

Question

Quizplus · Accepted Answer

The return on common stockholders' equity represents the amount of earnings available to common stockholders for each dollar of their investment. Since common stockholders' equity represents the amount invested by common stockholders in the company, it is appropriate to use the average common stockholders' equity to compute the return on common stockholders' equity. Therefore, the correct option is D, which states that we divide the net income available to common stockholders by the average common stockholders' equity.

The Return on Common Stockholders' Equity Is Computed by Dividing