Return on Common Equity =        Net Income – Preferred Dividends
                                                     Common Shareholders’ Equity – Preferred Equity

Return on Common Equity is a variation of the return on equity (or ROE) ratio.  The formula is used to measure return for common shares of stock when a company has also issued preferred shares.  To adjust preferred shares out of the equation, preferred dividends are subtracted from net income and preferred equity is excluded from the calculation.