The formula for computing the rate of return on common stockholders' equity is
A)(net income + interest expense)/ average total assets.
B)(net income - preferred dividends)/ average common stockholders' equity.
C)net income / net sales.
D)(net income - preferred dividends)/ number of shares of outstanding common stock.

Question

Quizplus · Accepted Answer

The rate of return on common stockholders' equity is commonly referred to as return on equity (ROE). It measures the net income earned by a company per dollar of common stockholders' equity. The formula for ROE is (net income - preferred dividends)/ average common stockholders' equity. Choice B correctly presents this formula.

The Formula for Computing the Rate of Return on Common