When Calculating the Return on Common Equity Ratio,why Are Dividends

question 62

Multiple Choice

When calculating the return on common equity ratio,why are dividends to preferred shareholders deducted from net income?

• A) because the ratio is an indicator of the return on common shareholders' equity rather than the return on total equity
• B) because dividends are not expenses on the current period income statement
• C) because conservatism indicates that shareholders prefer a smaller numerator
• D) because dividends are only available for distribution to common shareholders after the preferred shareholders have received their dividends

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