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

Question

Quizplus · Accepted Answer

The rate of return on common stock equity is calculated by dividing the net income available to common stockholders (which is the net income less any preferred dividends) by the average common stockholders' equity. This gives us the percentage return earned by common stockholders on their investment in the company. Option A correctly reflects this calculation.

The Rate of Return on Common Stock Equity Is Calculated