Rate of return on stockholders equity formula
Formula: The numerator in the above formula consists of net income available for common stockholders which is equal to net income less dividend on preferred stock. The denominator consists of average common stockholders’ equity which is equal to average total stockholders’ equity less average preferred stockholders equity. The return on equity ratio formula is calculated by dividing net income by shareholder’s equity. Most of the time, ROE is computed for common shareholders. In this case, preferred dividends are not included in the calculation because these profits are not available to common stockholders.