If a company has preferred stock outstanding, a variation of calculating return on shareholders' equity can be made by making adjustments to the ratio the equity accounts are reduced for amount the shares are originally sold.
Some of the important transactions that take place are the repurchases are recorded in the form stocks. Assets are recorded in for the stocks purchased. Equity accounts are reduced for the amount shares originally sold. Retained earnings are also shown as the purchases.
Adjustments are made keeping the ratio in mind without disturbing the variation in the share holders return and stocks outstanding remaining in the books of accounts.
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