eBook Profitability Metrics The following selected data were taken from the fina

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eBook Profitability Metrics The following selected data were taken from the financial statements of The O'Malley Group Inc. for December 31, 20Ys, 20Y4, and 20Y3: December 31 20Y5 20Y4 20Y3 Total assets Notes payable (10% interest) Common stock Preferred $4 stock, $100 par Retained earnings Net income No dividends on common stock were declared between 20Y3 and 20Y5. a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for the years 20Y4 and percentage answers to one decimal place. $201,000 70,000 28,000 14,000 79,000 17,830 $181,000 70,000 28,000 14,000 63,000 22,070 $161,000 70,000 28,000 14,000 42,000 17,656 20YS 20Y4 12 X% Return on total assets Return on stockholders' equity Return on common stockholders' equity b. What conclusions can be drawn from these data as to the company's profitability? 18.01 x % Since the rate of return on assets exceeds the cost of debt in both years, there is positive leverage from the use of debt. v

Explanation / Answer

2014 2015 1 Net Sales (a) 22070 17830 Opening Assets(b) 161000 181000 closing assets(c) 181000 201000 avg assets(c+b)/2 = d 171000 191000 return on total asset= a/d 0.129 0.093 2014 2015 2 Net Sales (a) 22070 17830 common stock (b) 28000 28000 preferedstock © 14000 14000 share holders equity (d= b+c) 42000 42000 return on share holders equity a/d 0.525476 0.42452381 3 2014 2015 Net Sales (a) 22070 17830 common stock (b) 28000 28000 return on common share holders equity a/b 0.788214 0.636785714

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