Asked by Grace Thomas on Jun 29, 2024
Verified
A company reports the following:
Net income$ .................................................350,000
Preferred dividends.......................................50,000
Average stockholders' equity.......................1,000,000
Average common stockholders' equity........800,000?
Determine the (a) return on stockholders' equity and (b) return on common stockholders' equity. Round your answers to one decimal place.
Return On
generally starts a financial metric indicating the efficiency of an investment or comparing the efficiency of several investments, measuring profit in relation to capital invested.
Stockholders' Equity
The residual interest in the assets of a corporation after deducting its liabilities, often referred to as shareholders' equity.
Common Stockholders' Equity
The portion of a corporation's equity that belongs to holders of its common shares, consisting of capital invested by the shareholders plus retained earnings.
- Comprehend the methods for computing return on total assets (ROA), return on stockholders' equity (ROE), and return on common stockholders' equity (ROCE).
Verified Answer
(b)Return on Common Stockholders' Equity =
(Net Income - Preferred Dividends)/Average Common Stockholders' EquityReturn on Common Stockholders' Equity =
($350,000 - $50,000)/$800,000Return on Common Stockholders' Equity = 37.5%
Learning Objectives
- Comprehend the methods for computing return on total assets (ROA), return on stockholders' equity (ROE), and return on common stockholders' equity (ROCE).
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