Return on Equity

While the return on capital measures the profitability of the overall firm, the return on equity (ROE) examines profitability from the perspective of the equity investor by relating profits to the equity investor (net profit after taxes and interest expenses) to the book value of the equity investment.

Book Value of Common Equity Since preferred stockholders have a different type of claim on the firm than do common stockholders, the net income should be estimated after preferred dividends and the book value of common equity should not include the book value of preferred stock. This can be accomplished by using net income after preferred dividends in the numerator and the book value of common equity in the denominator.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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