When computing the rate earned on total common stockholders' equity, preferred stock dividends are subtracted from net income.

Question

Quizplus · Accepted Answer

Preferred stock dividends are paid before any dividends can be paid to common stockholders, so they are not considered part of the return earned by the company on its common equity. Therefore, when computing the rate earned on total common stockholders' equity, preferred stock dividends are subtracted from net income.

When Computing the Rate Earned on Total Common Stockholders' Equity