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Definition

Return on common stockholders' equity

A widely used profitability ratio is return on common stockholders’ equity. It measures profitability from the common stockholders viewpoint. This ratio shows how many dollars of net income the company earned for each dollar invested by the owners. We compute it by dividing net income by average common stockholders' equity.

Return on common  

stockholders' equity  = Net Income ÷ Average Common Stockholders' Equity

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