What formula represents the measure of stock performance, using Net Income and Preferred Dividends?

The measure of stock performance using Net Income and Preferred Dividends is best represented by Return on Common Equity. This financial metric specifically evaluates the profitability of a company in relation to the equity held by common shareholders.

To calculate this ratio, you start with the Net Income, which reflects the company's total earnings after all expenses, taxes, and interest have been deducted. From the Net Income, you subtract any Preferred Dividends, as these are obligations that need to be paid out before considering the returns available to common shareholders.

The formula can be expressed as:

Return on Common Equity = (Net Income - Preferred Dividends) / Average Common Equity

Thus, this ratio indicates how effectively a company is utilizing shareholders' equity to generate profits, showcasing the performance and potential returns for common shareholders. It specifically reflects the interests of common shareholders, making it relevant for assessing stock performance in the context of equity investment.