return on common stock equity

Return on Common Equity

A publicly-traded company's earnings (less dividends on preferred shares) divided by the amount of money invested in common stock, expressed as a percentage. This is a measure of how well the company is investing the money invested in it. A high return on common equity indicates that the company is spending wisely and is likely profitable; a low return on common equity indicates the opposite. As a result, high returns on common equity lead to higher stock prices. Some analysts believe that return on common equity is an extremely important indicator in publicly-traded companies' health. See also: Growth stock.

return on common stock equity

A measure of the return that a firm's management is able to earn on common stockholders' investment. Return on common stock equity is calculated by dividing the net income minus preferred dividends by the owners' equity minus the par value of any preferred stock outstanding. For firms with no preferred stock, return on common stock equity is identical to return on equity. Compare profitability ratio.
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