The return on common shareholders' equity is calculated by dividing net income
A)by ending common shareholders' equity.
B)by average common shareholders' equity.
C)less preferred dividends by ending common shareholders' equity.
D)less preferred dividends by average common shareholders' equity.

Question

Quizplus · Accepted Answer

The return on common shareholders' equity is calculated by taking the net income, subtracting any preferred dividends (to isolate the earnings available to common shareholders), and then dividing by the average common shareholders' equity over the period. This approach provides a measure of how effectively a company uses equity financing to generate profits for common shareholders.

The Return on Common Shareholders' Equity Is Calculated by Dividing