# 荣耀电竞新

Definition:  The return on common stockholders’ equity ratio is the proportion of a firm’s net income that is payable to the common stockholders.

## What Does Return on Common Shareholders’ Equity Mean?

What is the definition of ROCE?  ROCE indicates the proportion of the net income that a firm generates by each dollar of common equity invested. Firms with a higher return on equity are more efficient in generating cash flows. Generally, investors have greater confidence in companies with a high and sustainable ROCE than in growth-oriented companies that cannot sustain growing returns on common equity.

ROCE is compared to the industry average to assess a company’s operating performance, and it is different than the return on equity (ROE) which measures the return on a firm’s total equity, i.e. on both the preferred equity and common equity.

The return on common equity formula is calculated using the following: the net income, the  preferred dividends , and the average common equity.

Let’s look at an example.

## Example

Anastasia is a common stockholder in the Company ABC. She wants to calculate the ROCE equation to compare the firm with the industry. Anastasia knows that the company has distributed \$200,000 in preferred dividends and that the firm’s reported net income is \$850,000.

Furthermore, in the beginning of 2015, the firm’s common equity was \$2,000,000, whereas at the end of 2015 it grew to \$2,450,000. Therefore, the average common equity for 2015 is (\$2,000,000 + \$2,450,000) / 2 = \$2,225,000. Anastasia can calculate the firm’s ROCE as follows:

ROCE = ((Net income – preferred dividends) / (average common equity)) x 100 = ((\$850,000 – \$200,000) / \$2,225,000) x 100 = 29.2%.

Anastasia finds out that for each dollar invested, the company ABC returns 29.2% of its net income to the common stockholders. Compared to the industry average of 22.4%, the company ABC is a safe bet for investing.

## Summary Definition:

Define Return on Common Stockholder’s Equity:  This is the percentage of net income that the common  shareholders  get to keep in return for owning their shares.

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