Q25RQ - Horngren'S Financial And Managerial Accounting

Question

What does the rate of return on common stock show, and how is it calculated?

Step-by-Step Solution

Answer

The rate of return on common stock is computed by dividing a corporate's net income by the average common stockholders' equity.

Step 1: Introduction to topic

Return on common stockholders' equity ratio estimates the progress of a corporation in generating income for the benefit of common stockholders

Step 2: The rate of return on common stock show-

The rate of return on common stock represents the relationship between net income available to common stockholders and their average common equity invested in the corporation. It is calculated by taking net income reduce preferred dividends and then dividing that number by weighted average common stockholders' equity.