Return on Common Equity

Return on Common Equity is defined as:

Return on Common Equity = Net Income To Common / Average Total Common Equity

Return on Common Equity is not meaningful for .

Return on equity represents the percentage return a company generates on the money shareholders have invested.

The Net Income used in the numerator is often adjusted for one-time and non-recurring items to present a clearer view of future earnings. Since income is earned over the course of a year, we average book value of Common Equity at the start and end of the year for the denominator.

In general, a higher return on equity suggests management is utilizing the capital invested by shareholders efficiently.