This essay focuses on average common stockholders’ equity. Similarly, the appropriate income figure for the numerator is net income less preferred dividends because
Reasoning similar to that use to calculate return on assets can be use. This is to calculate the return on capital provided by the common stockholder. Because we are interest in the return to the common stockholder, our base is no longer average total assets, but average common stockholders’ equity. Similarly, the appropriate income figure for the numerator is net income less prefer dividends because we are interest in the return to the common stockholder after all claims have been settled. Income taxes and interest expense have already been deduct in arriving at net income, but prefer dividends have not been because dividends are a distribution of profits, not an expense.
separate from the corporation and as a result will have limited liability as far the corporation’s obligations.
The owner of a corporation’s common stock is refer to as a common stockholder. The common stockholders elect the corporation’s board of directors and will. It is vote on very significant transactions such as merging the corporation with another corporation. Generally it is the common stockholders who become wealthy when a corporation becomes increasingly more successful.
In addition to common stock, some corporations also issue prefer stock. An owner of these shares is know as a preferred stockholder
The return on common stockholders’ equity ratio is as follows: