EX 14-17 Profitability ratios Objective 5 The followng selected data were taken

Question

EX 14-17 Profitability ratios Objective 5 The followng selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5 20Y6 20Y5 $4,800,000 $4,400,000 Total assets $4,000,000 2,250,000 2,250,000 Notes payable (8% interest) 2,250,000 250,000 250,000 Common stock 250,000 Preferred 4% stock, $100 par 500,000 no change during year) 500,000 1,574,000 1,222,000 Retained eanings 750,000 20Y7. Preferred The 20Y7 net income was $372,000, and the 20YG net income was $492 000 No dividends on common stock were declared between 20Ys and dividends were declared and paxd in full in 20Y6 and 20Y7 A Determine the return on total assets, the rate eamed on stockholdersequty, and the retum on common st (Round percentages to one decimal place.) the returm on common stockholders' equity for the years 20Y6 and 20Y7 B. what conclusions can be drawn from these data as to the company's profitability? + Upload File 935 PM

Explanation / Answer

ans 1 20Y7 20Y6 Return on Total assets Net Income/Avg total assets*100 8.1 11.7 % 372000/((4800000+4400000)/2)*100 492000/((4000000+4400000)/2)*100 Return on common stockholder equity 21.4 38.2 % Net Income-preferred dividend/Avg common stockholder equity (372000-20000)/((250000+1574000+250000+1222000)/2)*100 (492000-20000)/((250000+750000+250000+1222000)/2)*100 Preferred dividend=500000*4%=$20000 ans 2 The profitability has decreased in 20X7 than in 20X6. The return on total assets on 20X7 was 8.1% whereas in 20X6 it was 11.7% Return on common stockholder equity was 21.4% in 20X7 whereas in 20X6 it was 38.2% So there is real fall in profitability of the company. The reasons for the same should be audited.

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