How do you calculate return on common stockholders equity?
submitted by Tim Burr

Todd

Take the net income minus any preferred dividends, then divide that by the average common equity. That's: Net Income - Preferred Dividends / Average Common Equity.

Here's a Return on Equity Calculator.

Ramblin Man

Like many accounting equations, it's pretty straightforward. You just take the company's net profit after taxes, then subtract any dividends owed to preferred shareholders. Now divide that by the average amount of equity that shareholders own.

Return on common stockholder's equity shows the shareholders how well the company is making money for them.

Jimbo Jones

You've got the formula, so let me explain what exactly it's for. If the company earned a certain amount of profit, you subtract what's owed to preferred shareholders, then see how much that profit is relative to what the common shareholders invested, averaged over the year. It's like checking how good the company is at using investors' money to make profits.