Return on Common Equity Solution

STEP 0: Pre-Calculation Summary
Formula Used
Return on Common Equity = (Net Income-Preferred Dividends)/Average Common Equity
RCE = (NI-PD)/ACE
This formula uses 4 Variables
Variables Used
Return on Common Equity - Return on Common Equity is a financial ratio that measures a company's profitability and efficiency in generating returns for its common shareholders' equity.
Net Income - Net Income represents the amount of money that a company has earned after deducting all expenses, taxes, interest, and other costs from its total revenue during a specific period.
Preferred Dividends - Preferred Dividends are the dividends that a company is obligated to pay to its preferred shareholders before distributing any dividends to common shareholders.
Average Common Equity - Average Common Equity is a financial metric used to measure the average value of common shareholders' equity over a specific period.
STEP 1: Convert Input(s) to Base Unit
Net Income: 1065 --> No Conversion Required
Preferred Dividends: 675 --> No Conversion Required
Average Common Equity: 190 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
RCE = (NI-PD)/ACE --> (1065-675)/190
Evaluating ... ...
RCE = 2.05263157894737
STEP 3: Convert Result to Output's Unit
2.05263157894737 --> No Conversion Required
FINAL ANSWER
2.05263157894737 2.052632 <-- Return on Common Equity
(Calculation completed in 00.004 seconds)

Credits

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Created by Aashna
IGNOU (IGNOU), India
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Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad
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9 Financial Modeling and Valuation Calculators

Fifo Cost of Goods Sold
​ Go Fifo Cost of Goods Sold = Lifo Cost of Goods Sold-(Ending Lifo Reserve-Beginning Lifo Reserve)
Return on Common Equity
​ Go Return on Common Equity = (Net Income-Preferred Dividends)/Average Common Equity
Fifo Retained Earnings
​ Go Fifo Retained Earnings = Lifo Retained Earnings+Lifo Reserve*(1-Tax Saving)
Fifo Net Income
​ Go Fifo Net Income = Lifo Net Income+Change in Lifo Reserve*(1-Tax Saving)
Lifo Reserve
​ Go Lifo Reserve = Fifo Inventory Value-Lifo Inventory Value
Segment Debt Ratio
​ Go Segment Debt Ratio = Segment Liabilities/Segment Assets
Segment Turnover
​ Go Segment Turnover = Segment Revenue/Segment Assets
Segment Margin
​ Go Segment Margin = Segment Profit/Segment Revenue
Segment Roa
​ Go Segment Roa = Segment Profit/Segment Assets

Return on Common Equity Formula

Return on Common Equity = (Net Income-Preferred Dividends)/Average Common Equity
RCE = (NI-PD)/ACE

What is Return on Common Equity ?

Return on Common Equity is a key financial metric that measures the average value of common shareholders' equity over a specific period. It is used in financial analysis to evaluate a company's financial position, performance, and efficiency in generating returns for common shareholders. Average Common Equity provides insights into the shareholders' stake in the company and influences capital allocation decisions. However, analyzing and interpreting Average Common Equity requires consideration of various factors, including changes in equity components and reporting practices. Average Common Equity provides insights into the financial position and capital structure of a company. It represents the shareholders' stake in the company's assets after accounting for liabilities.

How to Calculate Return on Common Equity?

Return on Common Equity calculator uses Return on Common Equity = (Net Income-Preferred Dividends)/Average Common Equity to calculate the Return on Common Equity, Return on Common Equity represents the average value of common shareholders' equity over a specific period. Return on Common Equity is denoted by RCE symbol.

How to calculate Return on Common Equity using this online calculator? To use this online calculator for Return on Common Equity, enter Net Income (NI), Preferred Dividends (PD) & Average Common Equity (ACE) and hit the calculate button. Here is how the Return on Common Equity calculation can be explained with given input values -> 2.052632 = (1065-675)/190.

FAQ

What is Return on Common Equity?
Return on Common Equity represents the average value of common shareholders' equity over a specific period and is represented as RCE = (NI-PD)/ACE or Return on Common Equity = (Net Income-Preferred Dividends)/Average Common Equity. Net Income represents the amount of money that a company has earned after deducting all expenses, taxes, interest, and other costs from its total revenue during a specific period, Preferred Dividends are the dividends that a company is obligated to pay to its preferred shareholders before distributing any dividends to common shareholders & Average Common Equity is a financial metric used to measure the average value of common shareholders' equity over a specific period.
How to calculate Return on Common Equity?
Return on Common Equity represents the average value of common shareholders' equity over a specific period is calculated using Return on Common Equity = (Net Income-Preferred Dividends)/Average Common Equity. To calculate Return on Common Equity, you need Net Income (NI), Preferred Dividends (PD) & Average Common Equity (ACE). With our tool, you need to enter the respective value for Net Income, Preferred Dividends & Average Common Equity and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
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