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 is a measure of how much profit a company generates for each dollar of common stockholders' equity. Since a company's net income is typically reported on an annual basis, it makes sense to use the average common stockholders' equity as the denominator in the calculation. This ensures that the return on common stockholders' equity reflects the company's performance over the entire year, rather than just at the beginning or end of the year. Therefore, the correct answer is to divide net income available to common stockholders by average common stockholders' equity.

The Return on Common Stockholders' Equity Is Computed by Dividing