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Return on Common Stock Equity - A measure of the return that a firm's management is able to earn on common stockholders' investment. This ratio indicates the success of the company in generating profits on common stock investment. The higher the ratio the better for investors in the company.

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.

The formula is for return on common stock equity:

Net Income After Tax - Preferred Dividends / Stockholders' Equity - Preferred Stock Equity

The numerator and denominator are often referred to as "earnings available for common stock" and "common stock equity". respectively. Another way to calculate this ratio would be to substitute the market value of the company's common stock for the denominator.

For firms with no preferred stock, return on common stock equity is identical to return on equity.

Example: Bank of America

PERIOD ENDING	31-Dec-08		31-Dec-07
Net Income	4,008,000		14,982,000
Preferred Stock And Other Adjustments	(1,452,000)		(182,000)
Net Income Applicable To Common Shares	2,556,000		14,800,000
Stockholders' Equity
Preferred Stock	37,701,000		4,409,000
Common Stock	76,766,000		60,328,000
Retained Earnings	73,823,000		81,393,000
Other Stockholder Equity	(11,238,000)		673,000
Total Stockholder Equity	177,052,000		146,803,000
Return on Common Stock Equity
	2,556,000 + 1,452,000		14,800,000 + 182,000
	177,052,000 - 37,701,000		146,803,000 - 4,409,000
	=		=
	2.88%		10.52%