Marin Corporation's Return on Common Stockholders' Equity Calculation
How do we calculate Marin Corporation's return on common stockholders' equity for 2025?
Given that Marin Corporation had net income of $79,000 and paid dividends to common and preferred stockholders in 2025, with common stockholders' equity at the beginning and end of the year being $370,000 and $470,000 respectively, how can we determine the return on common stockholders' equity?
Calculation Steps:
1. Determine the average common stockholders' equity by adding the beginning and ending amounts and dividing by 2.
2. Calculate the return on common stockholders' equity by dividing the net income available to common stockholders by the average common stockholders' equity.
Return on common stockholders' equity is a crucial measure of a company's profitability, indicating how efficiently it generates income for common stockholders based on their invested equity. In the case of Marin Corporation for 2025, the calculation is as follows:
1. Average Common Stockholders' Equity: ($370,000 + $470,000) / 2 = $420,000
2. Return on Common Stockholders' Equity: $79,000 / $420,000 = 0.1881 (approximately 18.8%)
By converting the decimal to a percentage, we find that Marin Corporation's return on common stockholders' equity is approximately 18.8% for the year 2025. This means that for every dollar of common stockholders' equity, the company generated a return of 18.8 cents.