It excludes equity in other investments and foreign currency adjustments. Return on equity measures the profit a company earns for every dollar common stockholders have invested in it. Return on equity is defined as income available to common shareholders divided by the average common shareholder's equity at the beginning and end of the period. Income available to common shareholders is calculated by subtracting preferred dividends, if any, from income from continuing operations. Common shareholders equity is calculated as common stock plus capital surplus plus retained earnings, treasury stock.
Preferred stock is excluded from common equity.
The Chronicle 100 Houston-based companies are ranked by a score based on their standing in four categories. The best possible score is 4, or 1 for each category. Each of these criteria is given equal weight. If there was a tie, the company with the highest return on equity was ranked higher. Real estate investment trusts, royalty trusts and limited partnerships were not eligible for this list since profits for these companies, which are not taxed at the company level, are not comparable to the after-tax income for other corporations.