Return on equity is a profitability ratio calculated by dividing net income by average common stock equity.If the firm issues preferred stock,the dividends paid to preferred shareholders are subtracted from net income.

Question

Quizplus · Accepted Answer

This is a correct statement regarding how return on equity is calculated in the presence of preferred stock. The formula is: (Net income - Preferred stock dividends) / Average common stock equity.

Return on Equity Is a Profitability Ratio Calculated by Dividing