Profitability Ratios Profitability Ratios 31-Dec 20Y7 20Y6 20Y5 224,000$ 70,000$

Question

Profitability Ratios

Profitability Ratios 31-Dec 20Y7 20Y6 20Y5 224,000$ 70,000$ 5,600 $ 28,000 $ 14,000 $ 93,030 $ 31,340 135,030$ 213,000$ 202,000 S 70,000$ Total assets Notes payable (8% interest Notes Payable Interes Expense Common stock Preferred 7% stock, $100 par Retained earnings Net Income Total Stockholders Equit Average Total Assets 180,000 70,000 5,600 28,000 $ 14,000 $ 62,670 $ 21,650 126,320 191,000 28,000 14,000 42,000 20Y7 20Y6 Return on total assets Return on stockholders' equit Return on common stockholders' equit

Explanation / Answer

Solution:

20Y6

Return on total assets = Net Income/ Average total assets

Return on total assets = 21,650/ [(202,000 + 180,000)/2]

Return on total assets = 11.34%

20Y7

Return on total assets = Net Income/Average total assets

Return on total assets = 31,340/[(224,000 + 202,000)/2]

Return on total assets = 14.71%

20Y6

Return on stockolders equity = Net income/Stockholders equity

Return on stockholders equity = 21,650/126,320

Return on stockholders equity = 17.14%

20Y7

Return on stockholders equity = Net Income/stockholders equity

Return on stockholders equity = 31,340/135,030

Return on stockholders equity = 23.21%

20Y6

Return on common stockholders equity = (Net Income - Preferred dividend)/Average common stockholders equity

Return on common stockholders equity = (21,650 - 7%*14,000)/[(126,320 + 0)]/2

Return on common stockholders equity = 16.36%

20Y7

Return on common stockholders equity = (Net Income - Preferred dividend)/Average common stockholders equity

Return on common stockholders equity = (31,340 - 7%*14,000)/[(126,320 + 135,030)]/2

Return on common stockholders equity = 23.23%

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