Return on Common Equity CalculatorFree online financial calculator — instant results, no sign-up
Measure income available to common shareholders relative to average common equity.
Estimates only, based on the inputs and assumptions shown. This is not financial, investment, tax, or legal advice. Prices, rates and local rules may change; crypto scenarios do not predict returns. Confirm important decisions with a qualified professional.
Sign in to save results and favorites.
About the Return on Common Equity Calculator
The Return on Common Equity Calculator measures income available to common shareholders relative to average common shareholders’ equity. It subtracts preferred dividends from net income, then divides the remainder by average common equity to express the return as a percentage. With the default inputs, return on common equity is 15.2%.
- Net income ($)
- The company’s profit after expenses and taxes, before subtracting preferred dividends, for the measurement period, entered in dollars.
- Preferred dividends ($)
- Dividends attributable to preferred shareholders for the same measurement period, entered in dollars.
- Average common equity ($)
- The average book value of equity attributable to common shareholders during the measurement period, excluding preferred equity, entered in dollars.
Formula and method
ROCE = ((NI − PD) / ACE) × 100
- ROCEReturn on common equity, expressed as a percentage; here, ROCE does not mean return on capital employed.
- NINet income for the measurement period, in dollars.
- PDPreferred dividends for the same measurement period, in dollars.
- ACEAverage common shareholders’ equity for the measurement period, in dollars.
Subtract preferred dividends from net income to determine income available to common shareholders. Divide that amount by average common equity and multiply by 100. Using the default inputs: ($4,000,000 − $200,000) / $25,000,000 × 100 = 15.2%.
Worked example
These are the calculator's starting values and the results it actually produces for them.
Inputs
- Net income4000000 $
- Preferred dividends200000 $
- Average common equity25000000 $
Results
- Return on common equity15.2%
How to use the Return on Common Equity Calculator
- 1Choose a measurement period and obtain net income, preferred dividends, and average common equity for that period.
- 2Enter net income in dollars; the default is 4000000.
- 3Enter preferred dividends in dollars; the default is 200000. Enter zero if there are none.
- 4Enter average common equity in dollars; the default is 25000000. Exclude preferred equity from this amount.
- 5Calculate the result and read the return on common equity percentage; the default inputs produce 15.2%.
Reading your result
The return on common equity output shows accounting income available to common shareholders as a percentage of average common equity. The default result of 15.2% means the company generated 15.2 cents of such income per dollar of average common equity during the measurement period. It is not a dividend yield or a shareholder’s stock-market return. Compare it with the company’s historical results and similar businesses using consistent periods and accounting definitions.
Limitations
The calculation assumes all inputs use the same currency and measurement period, and that net income has not already had preferred dividends deducted. It does not automatically annualize results. Average common equity is often estimated as beginning plus ending common equity divided by two, but more frequent balances may better reflect substantial equity changes. Zero average common equity makes the ratio undefined; negative or very small equity can make it misleading. Debt, share buybacks, one-time gains or losses, and accounting policies can materially affect the result, so a higher percentage does not necessarily indicate a stronger investment.
Common questions
Why does this calculator subtract preferred dividends from net income?+
Preferred dividends represent earnings allocated to preferred shareholders rather than common shareholders. With the default inputs, subtracting $200,000 from $4,000,000 leaves $3,800,000 available to common shareholders.
How should I determine average common equity?+
Use equity attributable to common shareholders, excluding preferred equity. A common estimate is the average of beginning and ending balances for the measurement period; use more frequent balances when major share issues, buybacks, or other changes make that estimate unrepresentative.
Is the default return on common equity of 15.2% an annual return?+
Only if the inputs cover a full year. The calculator reports a return for the period represented by the inputs and does not automatically annualize quarterly or other shorter-period results.
How does return on common equity differ from total return on equity?+
Return on common equity uses net income less preferred dividends and excludes preferred equity from its denominator. A total-equity ROE measure generally uses net income divided by average total shareholders’ equity. The measures generally coincide when the company has no preferred equity or preferred dividends.
Does the calculator save my information?+
Calculations run in your browser. While signed in, inputs and results are automatically recorded in account history; saving a result creates a separate saved record.
You might also like
Interest Calculator
Growth of savings with compound interest and regular deposits.
Investment Calculator
Project an investment with monthly contributions.
Finance Calculator
Solve for future value from present value, rate, periods and payment.
Compound Interest Calculator
Compare compounding frequencies and see the effective rate.
Interest Rate Calculator
Find the rate on a loan from amount, payment and term.
Savings Calculator
How savings grow with deposits, interest and tax.
Results are estimates for informational purposes and are not financial, medical or legal advice.