Profitability Ratios The following selected data were taken from the financial s

Question

Profitability Ratios The following selected data were taken from the financial statements of Squiggle Group Inc. for December 31, 2012, 2011, and 2010: December 31 2012 2011 2010 Total assets $182,000 $164,000 $146,000 Notes payable (10% interest) 60,000 60,000 60,000 Common stock 24,000 24,000 24,000 Preferred 4% stock, $100 par 12,000 12,000 12,000 (no change during year) Retained earnings 63,590 52,770 36,000 The 2012 net income was $11,300, and the 2011 net income was $17,250. No dividends on common stock were declared between 2010 and 2012. a. Determine the rate earned on total assets, the rate earned on stockholders' equity, and the rate earned on common stockholders' equity for the years 2011 and 2012. When required, round to one decimal place. 2012?? 2011?? Rate earned on total assets: Rate earned on stockholders' equity: Rate earned on common stockholders' equity:

Explanation / Answer

2012 2011 2010 Total assets $182,000 $164,000 $146,000 Notes payable (10% interest) 60,000 60,000 60,000 Common stock 24,000 24,000 24,000 Preferred 4% stock, $100 par 12,000 12,000 12,000 Retained earnings 63,590 52,770 36,000 net income $11,300, $17,250. Return on Equity = Net Income/Shareholder's Equity for 2012 = 11300 / (24000 + 12000 + 63590) = 11300/99590 = 0.11346 = 11.35% for 2011 = 17250 /(24000 + 12000 + 52770) = 17250 / 88770 = 0.1943 = 19.43% return on common equity (ROCE) = net income - preferred dividends / commonequity. for 2012 = (11300 - 480)/(24000 + 63590) = 10820/87590 = 0.1235 = 12.35% for 2011 = (17250 - 480)/ (24000 + 52770) = 16770/76770 = 0.21844 = 21.84% return on assets = net income / total assets for 2012 = $11,300 / 182,000 = 0.0621 = 6.21% for 2011 = $17250/$164,000 = 0.10518 = 10.52%

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