Assume that all balance sheet amounts for Hiro Company represent average balance figures. $$\begin{array} { l r }
\text { Stockholders' equity-common } & \$ 300,000 \
\text { Total stockholders' equity } & 400,000 \
\text { Sales revenue } & 200,000 \
\text { Net income } & 54,000 \
\text { Number of shares of common stock } & 20,000 \
\text { Common stock dividends } & 20,000 \
\text { Preferred stock dividends } & 8,000
\end{array}$$ What is the return on common stockholders' equity for Hiro?

Question

Assume that all balance sheet amounts for Hiro Company represent average balance figures. $$\begin{array} { l r } 
\text { Stockholders' equity-common } & \$ 300,000 \
\text { Total stockholders' equity } & 400,000 \
\text { Sales revenue } & 200,000 \
\text { Net income } & 54,000 \
\text { Number of shares of common stock } & 20,000 \
\text { Common stock dividends } & 20,000 \
\text { Preferred stock dividends } & 8,000
\end{array}$$ What is the return on common stockholders' equity for Hiro?

Quizplus · Accepted Answer

The return on common stockholders' equity (ROE) is calculated as Net Income available to common shareholders divided by Average Common Stockholders' Equity. Net Income available to common shareholders is Net Income minus Preferred Dividends, which is $54,000 - $8,000 = $46,000. Common Stockholders' Equity is $300,000. Therefore, ROE = ($46,000 / $300,000) * 100 = 15.3%.

Assume That All Balance Sheet Amounts for Hiro Company Represent