1. What is Return On Common Stockholder Equity?

Return On Common Stockholder Equity (ROE) measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. It specifically focuses on common stockholders' equity, excluding preferred shares.

2. How Does the Calculator Work?

The calculator uses the ROE formula:

Where:

• \( net\_income \) — Company's total net income
• \( preferred\_dividends \) — Dividends paid to preferred shareholders
• \( common\_equity \) — Total common stockholders' equity

Explanation: The formula shows what percentage of common equity the company earned as net income after paying preferred dividends.

3. Importance of ROE Calculation

Details: ROE is a key profitability metric that helps investors assess how effectively management is using equity capital to generate profits. Higher ROE generally indicates more efficient use of investors' money.

4. Using the Calculator

Tips: Enter all values in the same currency. Common equity should be the average value over the period (beginning + ending balance divided by 2) for most accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROE value?
A: While it varies by industry, generally an ROE of 15-20% is considered good. Compare with industry peers for meaningful analysis.

Q2: How is this different from regular ROE?
A: This version specifically focuses on common stockholders by subtracting preferred dividends from net income.

Q3: Can ROE be negative?
A: Yes, if net income minus preferred dividends is negative, indicating the company is losing money for common shareholders.

Q4: What if common equity is negative?
A: Negative common equity makes ROE meaningless as it indicates the company has more liabilities than assets available to common shareholders.

Q5: How often should ROE be calculated?
A: Typically calculated quarterly and annually, but can be calculated for any period where you have the necessary financial data.