AuthorTopic: ROE and ROCE
rup1
@2010-10-12 21:43:06
What is the difference between return on equity and return on common equity?

Thx
valica
@2010-10-20 07:59:58
Hi,

The difference is that when you calcule the return on equity you consider total net income and total equity (i. e. common shares and preffered stocks). To calculate the return on common equity you should subtract from net income the preferred dividends and divide the result by common equity outstanding.

The preffered stocks have a constant return not influenced by the performance of the company. You are interested in return on common equity when considering how much you can gain by purchasing a certain common stock (as preffered stocks are not so easy to find :).

Regards and good luck with your study,
Vali

CFA Discussion Topic: ROE and ROCE

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