But if an exit is at a higher valuation than the original investment, a preferred shareholder should have the option to convert the shares into common equity if that will generate better returns.

Common stock allows for big returns – but owning it also comes with risk. Here, we look at what common stock is and dive into its pros and cons.

Dividing $6.3 billion (income) by $9.3 billion (equity) yields a rate of return on equity of 68%. That percentage means that Home Depot generated $0.68 of profit for every $1 that management had ...

Common stock is a type of security that represents an ownership position, or equity, in a company. When you buy a share of common stock, you are buying a part of that business.

Stockholders' equity or shareholders equity is the difference between a company's assets and liabilities. This includes common stock, retained earnings, and more.

Treasury stock is not an asset, it's a contra-stockholders' equity account, that is to say it is deducted from stockholders' equity. Treasury stock is most often carried on the balance sheet at cost.

Equity represents money supplied by stockholders and reinvested profits. When a small business issues common stock to investors, it reduces its debt-to-equity ratio and potentially decreases its risk.

The article How to Calculate Retained Earnings in Stockholder Equity With Common Stock originally appeared on Fool.com. Try any of our Foolish newsletter services free for 30 days .

Consistently high rates of return on equity are unusual in the business world. In fact, Home Depot's 68% figure puts it in the top 3% of the 500 companies that make up the S&P 500 index.