Question

Return on Common Stockholders' Equity
Smith & Sons, Inc., disclosed the following information in a recent annual report:

2015 2016
Net Income $63,000 $99,000
Preferred stock dividends 5,400 5,400
Average common stockholders' equity 2,400,000 3,000,000
Dividend per common share 2.16 2.16
Earnings per share 3.80 4.10
Market price per common share, year-end 39.00 42.00

Calculate the return on common stockholders' equity for Smith & Sons for 2015 and 2016.

Round answers to one decimal place. (Ex. 0.2345 = 23.5%)
2015 Answer

%
2016 Answer%


Did the return improve from 2015 to 2016?

Answer 1

Answer:

Explanation:

Return on common stockholders' equity for 2015:

(Net income - preferred stock)/Equity

(63,000-5,400)/2,400,000 = 57,600/2,400,000 = 2.4%

Return on common stockholders' equity for 2015:

(99,000-5,400)/3,000,000 = 93,600/3,000,000 = 3.12%

From these calculations, it is clear that return has improved.